Your firm successfully issued new debt last year, but the debt carries covenants. Specifically, you can only pay dividends out of earnings made after the debt issue and you must maintain a minimum quick (acid-test) ratio (Current Assets−Inventory)/Current Liabilities of 1.2. Your net income this year was $69.7 million. Your cash is $10.3 million, your receivables are $8.4 million, and your inventory is $5.2 million. You have current liabilities of $18.6 million. What is the maximum dividend you could pay (in cash and in stock) this year and still comply with your covenants?

Your firm successfully issued new debt last year, but the debt carries covenants. Specifically, you can only pay dividends out of earnings made after the debt issue and you must maintain a minimum quick (acid-test) ratio (Current Assets−Inventory)/Current Liabilities of 1.2. Your net income this year was $69.7 million. Your cash is $10.3 million, your receivables are $8.4 million, and your inventory is $5.2 million. You have current liabilities of $18.6 million. What is the maximum dividend you could pay (in cash and in stock) this year and still comply with your covenants?

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 8QE

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