Dividend constraints

A firm has $800,000 in paid-in capital, retained earnings of $40,000 (including the current years earnings), and 25,000 shares of common stock outstanding. In the current year, it has $29,000 of earnings available for the common stockholders.

a. Maximum dividend: ______________________

b. What effect would a cash dividend of $.80 per share have on the firms balance sheet entries? State two balance sheet entries it would effect and the total amount for each. 1. _________________________ 2. __________________________

c. If the firm cannot raise any new funds from external sources, what is the key constraint and why?