Stock price reactions to dividend announcements: The Dimples Golf Ball Co. has paid a regular dividend of $0.20 quarterly for the last three years. The company has 2 million shares outstanding. Over the next year the company will have to spend $800,000 to service its debt and spend $200,000 in capital expenditures. The company has $500,000 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 $500,000 in cash at the end of the year?

Question

Quizplus · Accepted Answer

The company needs $1,600,000 for dividends ($0.20 * 4 quarters * 2 million shares), $800,000 for debt service, and $200,000 for capital expenditures, totaling $2,600,000. With $500,000 cash on hand and needing to end with $500,000, they need $2,600,000 from operations.

Stock Price Reactions to Dividend Announcements: the Dimples Golf Ball