Question

HW Saved You received partial credit in the previous attempt 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. Net Income $12 millon 19 million 15 million 18 million 18 million Profitable Capital Expenditure $ 8 million 11 million 7 million 8 million 8 million The Hastings Corporation has 3 million shares outstanding. (The following questions are separate from each other). a. If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years? (Enter your answer in millions.) Total cash dividendo million b. If the firm simply uses a payout ratio of 20 percent of net income, how much in total cash dividends will be paid? (Enter your answer in millions and round your answer to 1 decimal place.) Total cash dividends million < Prey 8 of 20 l: Next >

Answer 1

a.Dividends paid over the 5 years ,when marginal principle of retained earnings is applied:
Year	Net Income	CAPEX	Balance
1	12	8	4
2	19	11	8
3	15	7	8
4	18	8	10
5	18	8	10
Total			40
ANSWER:
Total cash dividends = 40 millions

b.Dividends paid over the 5 years ,when the firm uses 20% pay-out ratio on net income
Year	Net Income	DPO=20%*NI
1	12	2.4
2	19	3.8
3	15	3
4	18	3.6
5	18	3.6
Total		16.4
ANSWER:
Total cash dividends =16.4 millions

c.Dividends paid over the 5 years ,when the firm
pays 20% stock dividend in yrs.2 to 5 & also
a cash dividend of $ 3.4 /share , in all 5 yrs.
Total cash dividends
Year	No.of shs.o/s(in mlns.)(Yr.1*1.2	cash div. at $ 3.4/sh
1	3	10.2
2	3.6	12.24
3	4.32	14.688
4	5.184	17.6256
5	6.2208	21.15072
		75.904320
		Millions
ANSWER:
Total cash dividends = 75.904320 millions

d.Dividends paid over the 5 years ,when the firm
pays 30% stock dividend in yrs.2 to 5 & also
a cash dividend of $ 3.4 /share , in all 5 yrs.
Year	No.of shs.o/s(in mlns.)(Yr.1*1.2	Net Income	DPO=40%*NI	Dividends/share($)
1	2=Prev.row*1.3	3=given	4=Col 3*405	5=Col 4/Col.2
1	3	12	4.8	1.60
2	3.9	19	7.6	1.95
3	5.07	15	6	1.18
4	6.591	18	7.2	1.09
5	8.5683	18	7.2	0.84