Plastic Enterprises’ stockholders’ equity account is as follows: Common stock (280,000 shares at $3.50 par) $980,000 Paid-in capital in excess of par $900,000 Retained earnings $1,200,000 Total...

Plastic Enterprises’ stockholders’ equity account is as follows:

            Common stock (280,000 shares at $3.50 par)                           $980,000

            Paid-in capital in excess of par                                      $900,000

            Retained earnings                                                        $1,200,000

                        Total stockholders’ equity                              $3,080,000

The earnings available for the common stockholders are $280,000 and are included as part of the $1,200,000 retained earnings.

1. Calculate the maximum dividend per share that the firm can pay if the legal capital includes all paid-in capital.


2. Calculate the maximum dividend per share that the firm can pay if the legal capital includes only the value of the common stock.


3. If Plastic Enterprises has $25,000 in cash, what is the largest per-share dividend it can pay without borrowing, assuming legal capital includes all paid-in capital?


4. What the purpose of capital impairment restrictions when developing a dividend policy?