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Refer to Joe's Appliances Ltd. (JAL) financial statements. Joe's VP of Finance has asked you to review its dividend policy. The VP wants a recommendation whether JAL should increase its dividend to $0.46 for 2020. Explain through calculations and a brief explanation whether you would recommend this increase. Assume a modest growth in EPS of 2% for next year.

1)Is JAL's liquidity adequate to pay the higher dividend?

2)How consistent is the higher dividend to their past and current payout? Calculate both

3)Can JAL sustain the increase in dividend? Explain

2018 2019 2019 1,760 991 770 Income Statement For Joe's Appliances Ltd. In Millions of USD, except per share items 2018 Revenue 1.643 Cost Of Goods Sold 927 Gross Profit 716 Selling General & Admin Exp. 600 Amort. of Goodwill and Intangibles 5 Total Operating Expense 605 Earnings Before Interest and Taxes 111 Net Interest Expense Other Non-Operating Income (Expense) Earnings Before Tax 110 Income Tax Expense Net Income Ratios For the Fiscal Period Ending Profitability Return on Assets % Return on Equity % Gross Margin % EBIT Margin % Net Income Margin % 637 5.6% 13.6% 43.6% 6.8% 5.0% 5.5% 12.1% 43.7% 7.4% 4.7% 640 130 19 1.3x 6.5x 17.2x 3.9x 1.2x 4.2x 17.4x 3.9x Per Share Items EPS Dividends per Share Shares Outstanding 0.38 76 Asset Turnover Total Asset Turnover Fixed Asset Turnover Accounts Receivable Turnover Inventory Turnover Short Term Liquidity Current Ratio Quick Ratio Avg. Days Sales Out Avg. Days Inventory Out. Avg. Days Payable Out. Avg. Cash Conversion Cycle Debt Management Total Debt/Equity Total Debt/Capital Total Liabilities/Total Assets EBIT / Interest Exp. Total Debt/EBITDA 1.1x 0.5x 21.2 93.4 48.1 66.5 1.2x 0.6x 21.0 94.3 38.2 77.1 2019 69 0.24 19.1% 83 50.3% 0.61 37.8% 57.0% 5.9x 16. 1x 1.1x 6 1.9% 111 258 7 10 538 1,055 (487) 569 535 1,642 Growth Over Prior Year Total Revenue Net Income Diluted EPS Balance Sheet for Joe's Appliances Ltd. In Millions of USD 2018 ASSETS Cash And Equivalents Short Term Investments Accounts Receivable Inventory 241 Prepaid Exp. Other Current Assets Total Current Assets 485 Gross Property, Plant & Equipment 631 Accumulated Depreciation (383) Net Property, Plant & Equipment 248 Other Long-Term Assets 530 Total Assets 1,263 LIABILITIES Accounts Payable 100 Curr. Port of LT Debt Other Current Liabilities 240 Total Current Liabilities 445 Long-Term Debt 36 Other Non-Current Liabilities 154 Total Liabilities 635 Total Equity 628 Total Liabilities And Equity 1.263 1.2% 14.9% 13.3% 8.3% 1.9% (3.7%) (4.6%) 7.7% Dividend per Share 106 103 19 318 440 92 404 936 706 1,642 Ratios

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