4. Dividend Policy Decisions Friendly Corp had a banner year with earnings of $ 3 million. Those earnings made their Retained Earnings balance jumped to $ 5 million.

Cash. $ 250,000 Accounts Payable. 350,000 Accounts Receivable 500,000 Goodwill 1,850,000 Property, Plant and Equipment 6,000,000

L/T Debt 1,250,00 Common Stock 2,000,000 Retained Earnings 5,000,000

a. Should the board declare a $ 1 million cash dividend in 6 months because of its earnings record year? b. Assuming Friendly Corp pays $ 1 million cash dividend, what would be the earnings retention rate? Why is this metric important? c. If the stock price is $ 50 would you buy this stock? Why?