Problem NO: 5

Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the

Matheny Inc. went public 3 years ago. The board of directors will be meeting shortly after the end of the year to decide on a dividend policy. In the past, growth has been financed primarily through the retention of earnings. A stock or a cash dividend has never been declared.

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Presented below is a brief financial summary of Matheny Inc. operations.

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($000 omitted)

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2015 2014 2013 2012 2011

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Sales revenue $20,000 $16,000 $14,000 $6,000 $4,000

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Net income 2,400 1,400 800 700 250

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Average total assets 22,000 19,000 11,500 4,200 3,000

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Current assets 8,000 6,000 3,000 1,200 1,000

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Working capital 3,600 3,200 1,200 500 400

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Common shares:

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Number of shares

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 outstanding (000) 2,000 2,000 2,000 20 20

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Average market price $9 $6 $4 — —

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Instructions

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(a) Suggest factors to be considered by the board of directors in establishing a dividend policy.

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(b) Compute the return on assets, profit margin on sales, earnings per share, price-earnings ratio, and current ratio for each of the 5 years for Matheny Inc.

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(c) Comment on the appropriateness of declaring a cash dividend at this time, using the ratios computed in part (b) as a major factor in your analysis.

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