Dividend Aristocrat Inc. (DA) borrowed $200,000 from Grow Business Bank to finance the purchase of equipment costing $150,000 and to provide $50,000 in cash. The legal documentation states that the loan matures in 20 years, and the principal is to be paid in annual instalments of $10,000. The terms of the loan also indicate that DA must maintain a current ratio of 1.25 and cannot pay dividends that will reduce retained earnings below $100,000. The 2020 year-end statement of financial position, immediately prior to the bank loan and the purchase of equipment, follows:

Required
After accepting the loan and purchasing the equipment, how large a dividend can DA’s board of directors declare and not be in breach of the terms of the loan?

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$100,000 400,000 Current liabilities Long-term liabilities Common shares Retained earnings Total liabilities and shareholders' equity $ 75,000 200,000 100,000 Current assets Non-current assets 125,000 Total assets $500,000 $500,000