This is a portion of a bank stress test

Explain with reasoning how much of the Net Income to distribute to shareholders as Dividends and how much to direct to retained Earnings; and (b) how much of Retained Earnings to direct to Reserves and how much to Cash & Money Market investments.

The point of the question is reasoning only, not the particular amounts.

Net Income $700,000

Balance Sheet assets (if allNet Income is included) $42,500,000

Risk-Weighted Assets (if allNet Income is included) $25,000,000

Net Worth $2,500,000

Assume required capital is 8% of Risk-Weighted Assets.