Question

The Hastings Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can eam a higher return on the projects than the stockholders could eam ir the funds were paid out in the form of dividends Profitable Capital Year Net Income $11 million 23 million 9 million 14 million 22 million Expenditure S 8 million 11 million 7 million 8 million 9 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 dividends in Millions:_____________________

b. If the firm simply uses a payout ratio of 30 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 in millions:__________________________

c. If the firm pays a 20 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:_________________________

d. Assume the payout ratio in each year is to be 20 percent of net income and the firm will pay a 10 percent stock dividend in years 2 through 5. How much will dividends per share for each year be? (Assume cash dividend is paid after the stock dividend). (Round your answers to 2 decimal places.)

Answer 1

Hastings Corporation a. If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years? (in million $) Dividends represent what is left over after profitable capital expenditures are undertaken Profitable Capital Year Net Income Expenditures Dividends 2 12 14 13 Total cash dividends 36 b. If the firm simply uses a payout ratio of 30 percent of net income, how much in total cash dividends will be paid? Year Net Income Payout ratio Dividends 3.3 6.9 2.7 4.2 6.6 23.7 2 14 Total cash dividends c. If the firm pays a 20 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? Shares Dividends Year outstanding per share 3.6 4.32 5.18 6.22 Dividends 7.2 8.64 10.37 12.44 14.93 53.58 2 Total cash dividends d. Assume the payout ratio in each year is to be 20 percent of net income and the firm will paya 10 percent stock dividend in years 2 through 5. How much will dividends per share for each year be? (Assume cash dividend is paid after the stock dividend) Dividends Year Net Income Payout ratio Dividends 2.2 4.6 Shares per share 0.73 1.39 0.50 0.70 1.00 2 3.3 14 4.0 4.4 4.4

c. If the firm pays a 20 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? Dividends per share 2.4 2.4 2.4 2.4 2.4 Shares Year outstanding KKNK) 飆XXXX) 4320000 5184000 6220800 Dividends xxK 8640000 10368000 12441600 14929920 53579520 2 4 Total cash dividends