A debt issue contains a dividend limitation. Cumulative dividends cannot exceed the sum of $25 million and 60% of cumulative net income since the debt was issued three years ago. The firm earned $50 million net income in each of those years. It paid total dividends of $15 million and $20 million the past two years and $25 million so far this year. How large a dividend could the firm pay at the end of the third year without violating the dividend limitation?© BrainMass Inc. brainmass.com October 10, 2019, 2:16 am ad1c9bdddf
The total amount of dividends that can be paid = 25 + 60% of cumulative ...
The solution explains how to determine the maximum amount of dividends that can be paid under the bond covenant.