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The Hastings Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can earn a higher return
The Hastings Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can earn a higher return on the projects than the stockholders could earn if the funds were paid out in the form of dividends.
Year | Net Income | Profitable Capital Expenditure |
---|---|---|
1 | $ 12 million | $ 8 million |
2 | 20 million | 12 million |
3 | 12 million | 7 million |
4 | 14 million | 8 million |
5 | 16 million | 8 million |
The Hastings Corporation has 2 million shares outstanding. (The following questions are separate from each other.)
- If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years?
Note: Enter your answer in millions.
- If the firm simply uses a payout ratio of 40 percent of net income, how much in total cash dividends will be paid?
Note: Enter your answer in millions and round your answer to 1 decimal place.
- If the firm pays a 10 percent stock dividend in years 2 through 5, and also pays a cash dividend of $2.40 per share for each of the five years, how much in total dividends will be paid?
- Assume the payout ratio in each year is to be 20 percent of the net income and the firm will pay a 10 percent stock dividend in years 2 through 5, how much will dividends per share for each year be? (Assume the cash dividend is paid after the stock dividend.)
Note: Round your answers to 2 decimal places.
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