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    Maximum Amount of Dividend and Stockholders Equity

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    Your corporation has the following stockholders equity.

    Common Stock at par $ 750,000
    Paid in capital in excess of par 1,250,000
    Retained earnings 2,500,000
    Total $ 4,500,000

    a. What is the maximum amount of dividends the corporation can pay in states where the firm's legal capital is defined as the par value of its common stock?
    b. How does your answer change if the firm is in a state where legal capital includes all paid-in capital?

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    A firm cannot pay dividends from its legal capital.

    a. If the legal capital is the par value of the common stock, then the amount ...

    Solution Summary

    The solution explains the maximum amount of dividends that can be paid given the constraints of legal capital.