net income
Question
26)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.
| Year | Net Income | Profitable Capital Expenditure | ||||
| 1 | $13 million | $ 7 million | ||||
| 2 | 24 million | 11 million | ||||
| 3 | 17 million | 6 million | ||||
| 4 | 18 million | 8 million | ||||
| 5 | 22 million | 8 million |
| The Hastings Corporation has 2 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 | $ 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 |
| c. | If the firm pays a 10 percent stock dividend in years 2 through 5, and also pays a cash dividend of $3.40 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.) |
| Year | Dividends per Share |
| 1 | $ |
| 2 | $ |
| 3 | $ |
| 4 | $ |
| 5 | $ |
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