Q#2: Acme Corporation consists of 250 grocery stores throughout the West. At the beginning of 2015 its statement of net worth showed the following information: Common Stock $1,800,000 and retained earnings $500,000. During the year net income equalled $160,000. Management was undecided on what to do with the income. Acme paid a dividend of $0.35 last year and the stock price is currently $14.50. Acme has a 6% growth rate in earnings and dividends, and is in the 40% tax bracket. A. What return on investment would Acme have to earn in order to justify retaining 2015’s earnings? B. What changes would occur in the statement of net worth if a $.25 cash dividend was paid? If a 5% stock dividend was given and no cash dividend was paid?
