Question

Your company expects profits to be close to $4,000,000. The board has instructed you to increase retained earnings by approximately $2,000,000. What dividend amount, per share, will you pay this year

Answer 1

The amount of dividends and dividend price per share comes out to be $2,000,000 and $20 when the number of shares is assumed to be 100,000.

What are dividends?

Dividends are the amounts allocated to share investors by the company up to their shareholdings. It is the amount that is first provided to preferred stock investors.

Given values:

Expected profits: $4,00,000

Increase in Retained earnings: $2,000,000

The number of shares is assumed to be 100,000.

Computation of dividend per share;

$\rm\ Dividend \rm\ per \rm\ share=\frac{\rm\ Expected Profits-\rm\ Increase \rm\ in \rm\ Retained \rm\ Earnings}{Number of shares} \\\rm\ Dividend \rm\ per \rm\ share=\frac{\ 4,00,000-\ 2,000,000}{100,000} \\\rm\ Dividend \rm\ per \rm\ share=\frac{\ 2,000,000}{100,000} \\\rm\ Dividend \rm\ per \rm\ share=\ 20$

Therefore, the amount of the dividend is $2,000,000 at a share price of $20 to be paid this year.

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