Question
Friendly Corp had a banner year with earnings of $ 3 million.Those earnings made their Retained Earnings balance jumped to $ 5 million.The rest of
Friendly Corp had a banner year with earnings of $ 3 million.Those earnings made their Retained Earnings balance jumped to $ 5 million.The rest of the Balance Sheet is:
Cash$ 250,000
Accounts Payable350,000
Accounts Receivable500,000
Goodwill1,850,000
Property, Plant and Equipment6,000,000
L/T Debt1,250,000
Common Stock2,000,000
Retained Earnings5,000,000
Required:
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?
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Foundations of Financial Management
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
16th edition
125927716X, 978-1259687969, 1259687961, 978-1259277160
