Question

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. Profitable Capital Expenditure $ 7 million Year Net Income $18 million 10 million million 20 million 15 million million million The Hastings Corporation has 2 million shares outstanding (The following questions are separate from each other). 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 dividends million b. If the firm simply uses a payout ratio of 50 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 If the firm pays a 10 percent stock dividend in years 2 through 5, and also pays a cash dividend of $2.40 per share for each of the five years, how much in total dividends will be paid? Total cash dividends

Answer 1

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NPV, IRR, PBP,OCF,INDEX Microsoft EXcel (Pro File Home Insert Page Layout Formulas Data Review View Add-Ins Cut Ea Copy - AutoSum General Wrap Text Calibri 11 Fill A- Merge & Center Insert Delete Format Paste Conditional Format Cell Sort & Find & BIU 2 Clear Format Painter Formatting ble Styles er Select Clipboard Font Alignment Number Shules Cells Editing AL566 AW AI AK AL AM AN AO AP AQ AR AS AT AU AV 552 553 (a) MARGINAL PRINCIPLE OF RETAINED EARNINGS: IT MEANS WHAT IS LEFT ARE ALLOCATING FOR CAPITAL EXPENDITURE 554 PROFITABLE CAPITAL DIVIDEND 555 EXPENDITURE (B) PAID (A-B) NET INCOME(A) 556 YEAR 557 1 18 11 20 558 12 8 559 10 7 3 560 4 20 8 12 561 15 8 7 562 41 TOTAL CASH DIVIDEND PAID IN 5 YEARS $41 MILLION 563 564 565 566 567 568 569 570 14 H OCF CASH FLOW STATW FCF ARM, MSI,confidencelNDEX CURRENCY CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST PREF AND DIV POLICY 130% LOAN Re erences W 06:06 ENG 06-07-2019

NPV, IRR, PBP,OCF,INDEX Microsoft EXcel (Pro File Home Insert Page Layout Formulas Data Review View Add-Ins - Cut AutoSum General Wrap Text Calibri 11 Fill Copy A Merge & Center Insert Delete Format Paste BIU Conditional Format Cell Sort & Find & 2 Clear Format Painter Formatting ble Styles er Select Clipboard Font Alignment Number Shules Cells Editing AL578 AW AN AQ AJ AK AL AM AO AP AR AS AT AU AV 564 565 566 DIVIDEND PAYOUT 567 (b) 50% OF NET INCOME 568 DIVIDEND PAID NET INCOME(A) 569 YEAR 50% OF NET INCOME 570 1 18 20 571 2 10 572 10 5 573 4 20 10 574 5 15 7.5 575 41.5 $41.5 MILLION 576 TOTAL CASH DIVIDEND PAID IN 5 YEARS 577 578 579 580 581 582 ARM, MSI,confidencelINDEX CURRENCY CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST PREF AND DIV POLICY 1308% OCF CASH FLOW STATW FCF LOAN Re erences W 06:06 ENG 06-07-2019

NPV, IRR, PBP,OCF,INDEX Microsoft EXcel (Pro File Home Insert Page Layout Formulas Data Review View Add-Ins - Cut AutoSum General Wrap Text Calibri 11 Fill Copy A Merge & Center Insert Delete Format Paste Conditional Format Cell Sort & Find & BIU 2 Clear Format Painter Formatting ble Styles er Select Clipboard Font Alignment Number Shules Cells Editing AL595 AW AM AQ AI AK AL AN AO AP AR AS AT AU AV 577 (c) 578 10% STOCK DIVIDEND IN YEARS 2 TO 5 579 ALSO CASH DIVIDEND $2.40 PER SHARE FOR 5 YEARS 580 581 CASH DIVIDEND STOCK 2,40 PER SHARE 582 (DIVIDEND X NO OF SHARES) DIVIDEND TOTAL SHARES 583 YEAR 2 MILLION SHARES AFTER STOCK DIVIDEND 4.8 (2.40 X 2) 584 1 2 MILLION 5.28 (2.40X 2.2) 2.2 MILLION 585 2 2 X 10% =0.2 2.2X 10%= 0.22 586 3 5.808 (2.40 X 2.42) 2.42 MILLION 6.3888 (2.40X 2.662) 2.42 X 10% = 0.242 587 4 2.662 MILLION 7.02768 (2.40 X 2.9282) 588 2.662 X 10% 0.2662 2.9282 MILLION 589 590 29.30448 0.9282 MILLION [2.9282 - 2] 591 CASH DIVIDEND STOCK DIVIDEND 592 (IN MILLIONS) 593 CASH DIVIDEND IS ANS 29304480 594 595 HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST PREF AND DIV POLICY 130% OCF CASH FLOW STATWFCF ARM, MSI,confidencelINDEX CURRENCY LOAN CROSS OVER Re erences 06:07 ENG 06-07-2019

NPV, IRR, PBP,OCF,INDEX Microsoft EXcel (Pro File Home Insert Page Layout Formulas Data Review View Add-Ins - Cut AutoSum General АА Wrap Text Calibri 11 Fill Copy BI U A Merge & Center Conditional Format Insert Delete Format Paste S % Cell Sort & Find & 2 Clear Format Painter Formatting ble Styles er Select Clipboard Font Alignment Number Shules Cells Editing АК604 AW AT AI Ak AL AM AN AO AP AQ AR AS AU AV (d) 596 30% STOCK DIVIDEND IN YEARS 2 TO 5 DIVIDEND PAYOUT 597 40% OF NET INCOME 598 STOCK 599 DIVIDEND PAID DIVIDEND TOTAL SHARES NET INCOME(A) 2 MILLION SHARES 600 YEAR 40% OF NET INCOME AFTER STOCK DIVIDEND 601 1 18 7.2 2 MILLION 20 2.6 MILLION 602 2 X 30% =0.6 2.6 X 30% 0.78 603 10 4 3.38 MILLION 604 20 3.38 X 30% = 1.014 4,394 MILLION 4 4.394X30% 1.3182 5.7122 MILLION 605 15 6 606 DIVIDEND PER SHARE 607 608 YEAR DIVIDEND PAID NO OF SHARES DIVIDEND PER SHARE 7.2 609 1 3.60 2,6 610 2 3.08 4 611 3 3.38 1.18 8 612 4,394 1.82 613 5 5.7122 1.05 614 ARM, MSI,confidencelINDEX CURRENCY CROSS OVER HEDGING MONEY MARKET GM HPR AM TAX GROWTH SUST PREF AND DIV POLICY 130% OCF CASH FLOW STATW FCF LOAN Re erences 06:07 ENG 06-07-2019