The Wyoming Boot, Co. has paid a regular dividend of $0.25 quarterly for the last several years. The company has 1 million shares outstanding. Over the next year, the company will have to spend $600,000 to service its debt and spend $500,000 in capital expenditures. The company has $600,000 of cash and cash equivalents. Over the next year, how much cash must be provided from operations to continue to make the same quarterly dividend payment and still have $250,000 in cash at the end of the year?

Question

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The company pays $0.25 quarterly per share, with 1 million shares, which equals $250,000 per quarter or $1,000,000 annually in dividends. Adding the $600,000 for debt service and $500,000 for capital expenditures, the total cash needed is $2,100,000. With $600,000 in cash and wanting to retain $250,000, the company needs $2,100,000 - $600,000 + $250,000 = $1,750,000 from operations.