You are considering purchasing some Stanley Ltd. common shares. Although Stanley recently had to…

You are considering purchasing some Stanley Ltd. common shares. Although Stanley recently had to incur significant expenditures for new capital assets, the company has been relatively profitable over the years and its future prospects look good. The summarized statement of financial position at the end of 2016 is as follows: Cash……… $ 137,500 Other current assets….. 640,500 Capital assets (net)…… 4,702,000 Total ……… $5,480,000 Current liabilities……. $ 414,000 Long-term debt…….. 2,000,000 Share capital, common shares. 1,000,000 Retained earnings….. 2,066,000 Total………. $5,480,000 The company has 150,000 common shares outstanding, and its earnings per share have increased by at least 10% in each of the last 10 years. In several recent years, earnings per share increased by more than 14%. Given the company’s earnings and the amount of retained earnings, you judge that it could easily pay cash dividends of $3 or $4 per share, without reducing its retained earnings. Required: a. Discuss whether it is likely that you would receive a cash dividend from Stanley during the next year if you were to purchase its shares. b. Discuss whether it is likely that you would receive a cash dividend from Stanley during the next five years if you were to purchase its shares. c. In making an investment decision, would it help you to know whether Stanley has paid dividends in the past? Explain. d

 

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