Smathers Jellies Follows a Residual Dividend Policy and Maintains a Constant

question 244

Multiple Choice

Smathers Jellies follows a residual dividend policy and maintains a constant debt-equity ratio. There are 15,000 shares of stock outstanding at a market price of $10 a share. There are 300 bonds outstanding, which are selling at par value. The projected spending on capital projects is $180,000 for next year. Earnings for next year are estimated at $70,000. What is the projected dividend amount per share?

• A) $0
• B) $.33
• C) $.50
• D) $.67
• E) $1.00

---

Definitions:

Deposit Expansion Multiplier

The deposit expansion multiplier refers to the ratio of the amount of money banks can create in the form of checkable deposits to the amount of reserves they hold.

Reserve Ratio

The fraction of deposits that banks are required to hold in reserve and not lend out, set by central banks to control the money supply and banking stability.

Depository Institutions Deregulation and Monetary Control Act

A U.S. federal law enacted in 1980 aimed at improving the Federal Reserve's control over monetary policy, deregulating certain aspects of the banking industry.

Legal Reserve Requirements

Legal reserve requirements are regulations set by a central bank that determine the minimum amount of reserves that must be held by a financial institution.