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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

If a “typical” firm reports $20 million of retained earnings on its balance sheet, could its directors declare a $20 million cash dividend without having any qualms about what they were doing? Explain your answer.

Summary Introduction

To explain: The total retained earnings can be declared as cash dividends by the directors of the company or not.

Introduction:

Retained Earnings: The companies retain some portion of its net income with the company to be used in the company’s operations. That remaining portion of a company’s net incomes is called retained earnings.

Cash Dividends: The cash amount declared and paid to shareholders as the income on their investment is known as cash dividends. Company’s directors decide the cash dividends to be paid.

Explanation
  • The retained earnings are nothing but the retained share of net income available to shareholders.
  • So the directors of the company can declare ...

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