The Hastings Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can earn a higher return on the projects than the stockholders could earn if the funds were paid out in the form of dividends.
Year Net Income Profitable Capital Expenditure
1 $ 17 million $ 8 million
2 20 million 11 million
3 18 million 7 million
4 14 million 7 million
5 22 million 9 million
The Hastings Corporation has 2 million shares outstanding.
Required:
a. If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years? (Enter your answer in millions.)
b. If the firm simply uses a payout ratio of 40 percent of net income, how much in total cash dividends will be paid? (Enter your answer in millions and round your answer to1 decimal place.)