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10 00 points Problem 18-6 Limits on dividends [LO18-3 O Type here
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Answer #1

a) There is no limitation imposed by law to pay dividend up to a certain percentage but the amount it can pay can be practicable up to its retained earnings, which are:

Retained Earning = Stockholders Equity - Common Stock

=$128,000,000 - $50,000,000

=$78,000,000

b) The practical limit based on liquidity is equal to the cash balance available

=Total assets * cash percentage

=$280,000,000 * 4%

=$11,200,000

c)If the company pays out the amount in part b, then,

Payout ratio = Dividend / Earnings

=$11,200,000 / $21,000,000

=53.3333 or 53.34%

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