Papier Company Limited a manufacturer of toilet paper and napkins has preferred stock of $1,000,000, paid-in capital of $900,000, paid-in capital in excess of par of $600,000, retained earnings of $60,000 (including the current years earnings), and 60,000 shares of common stock outstanding. This year, 2018, the companys earnings available to common stockholders are $66,000.

Answer the following questions:

1. Assuming that legal capital includes all paid-in capital calculate the maximum cash dividends that Papier can pay in cash dividends to each common stockholder? (3 marks)

2. What effect will a cash dividend of $0.90 per share have on the firms balance sheet entries? (3 marks)

3. If the firm cannot raise any new funds from external sources what will be the biggest constraint of the firms dividend payments? Provide reasons for your answer (3 marks)

4. Papier Company Limited has a stock price of $60 per share and is considering a 3-for-2 stock split. Answer the following questions:
   1. What effect will the stock split have on Papier Company Limited equity accounts and per-share data? (3 marks)
   2. What change in stock price may result from the stock split? (3 marks)
   3. What is the maximum cash dividend per share that Papier can pay on common stock BEFORE and AFTER the stock split? (Assume that legal capital includes all paid-in capital) (5 marks)
   4. Explain the differences between stock split and stock dividends. (3 marks)
   5. What legal constraints might encourage the firm to choose a stock split over a stock dividend? (3 marks)