Carnegie Mellon and Produce Co. has 120,000,000 in stockholders’ equity. Forty million dollars is listed as common stock and the balance is in retained earnings. The firm has $250,000,000 in total assets and 3 percent of this value is in cash. Earnings for the year are $20,000,000 and are included in retained earnings. (a) What is the legal limit on current dividends? (b) What is the practical limit based on liquidity? (c) If the company pays out the amount in part (b), what is the dividend payout ratio?
Compute on per-share basis because the number of shares is not given.