Question 3: You have recently been appointed CEO of Layfayette, a wholesale distributor of baguettes and other French delicacies. One day your CFO reminds you that next week you will have to make recommendations to the board of directors regarding this year's annual dividend. This catches you totally by surprise. Luckily, the CFO was kind enough to provide you with some additional information. He shows you the projected income statement and balance sheet, without the effect of any dividend declaration Income Statement: Sales COGS Gross profit. Operating expenses. Operating income before interest. Interest expense... Income before tax. Income tax (30%). 44,000,000 29.400.000 14,500,000 6.000.000 8,500,000 1.000.000 7,600,000 2.300.000 5,300,000 Net income.. Statement of Financial Position: Current Assets Cash 4,000,000 Accounts receivable. 5,000,000 Inventory. 2,000,000 Other 3.700.000 Total Current Assets 14,700,000 Long-term investments. 7,000,000 Property, plant and equipment (net). 17.000.000 Total Assets. 38.700.000 Current Liabilities Accounts payable.. 2,000,000 Accrued liabilities.. 3,000,000 Other 4.000.000 Total Current Liabilities. Non-current liabilities... Shareholders' Equity 9,000,000 16,000,000 Common shares. 1,000,000 Contributed surplus. 4,900,000 Retained earnings (includes this year's net income). 7.800.000 Total Shareholders' Equity... 13,700,000 Total Liabilities and Equity.. 38.700.000 FMGT-4824 Assignment #3: Shareholders' Equity and Earnings Per Share Other information: 1) Last year, the net income was $3,500,000, and $3,300,000 cash dividends were paid. 2) Layfayette has two debt agreements that call for the corporation to maintain at least $ 2,500,000 in retained earnings, as well as maintain a debt to total assets ratio of no more than 70%. 3) There has been no change in the number of shares outstanding during the year. You start to think about the recommendations you are going to make. It is the end of November, and historically the corporation has declared dividends five days before the end of the year. Instructions a) What factors will limit the amount to be distributed as dividends? b) What are important considerations in your decision? What would you recommend? Provide any journal entry that is related to your decision