Foymount Industries Inc. borrowed $800,000 from Development Bank to finance the purchase of equipment costing $650,000 and to provide $150,000 in cash. The legal documentation states that the loan matures in 20 years, and the principal is to be paid in annual instalments of $40,000. The terms of the loan also indicate that Foymount must maintain a current ratio of 2.5 and cannot pay dividends that will reduce retained earnings below $375,000. The statement of financial position, immediately prior to the bank loan and the purchase of equipment, follows:

Required

In the fiscal year ended 2020, the board of directors would like to declare a dividend to be paid to shareholders early in the next year. After accepting the loan and purchasing the equipment, how large a dividend can Foymount’s board of directors pay and not be in breach of the terms of the loan?

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$ 350,000 4,000,000 Current assets Non-current assets Current liabilities Long-term liabilities Common shares Retained earnings Total liabilities and shareholders' equity $ 150,000 1,500,000 2,260,000 440,000 $4,350,000 Total assets $4,350,000