Problem 17-5 How Corporations Pay Dividends (LO1)The stock of Payout Corporation will go ex-dividend tomorrow. The dividend will be $0.40 per share, and there are 15,000 shares ofstock outstanding. The market-value balance sheet for Payout is shown below. Ignore taxes.AssetsCashFixed assets$ 280,0001,070,000a. Priceb. PriceLiabilities and EquityEquity$ 1,350,000a. What price is Payout stock selling for today?b. What price will it sell for tomorrow?Note - For all requirements, round your answer to 2 decimal places.

Value per share today = Equity / No of sharesValue per share tomorrow= Value per share today -…

Answered: Problem 17-5 How Corporations Pay…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 2P

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ALTERNATIVE DIVIDEND POLICIES Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of 0.75 out of annual earnings per share of 2.25. Currently, Rubenstein Bros.' stock is selling for 12.50 per share. Adhering to the company's target capital structure, the firm has 10 million in total invested capital, of which 40% is funded by debt. Assume that the firm's book value of equity equals its market value. In past years, the firm has earned a return on equity (ROE) of 18%, which is expected to continue this year and into the foreseeable future. a. Based on this information, what long-run growth rate can the firm be expected to maintain? (Hint: g = Retention rate ROE.) b. What is the stock's required return? c. If the firm changed its dividend policy and paid an annual dividend of 1.50 per share, financial analysts would predict that the change in policy will have no effect on the firm's stock price or ROE. Therefore, what must be the firms new expected long-run growth rate and required return? d. Suppose instead that the firm has decided to proceed with its original plan of dis bursing 0.75 per share to shareholders, but the firm intends to do so in the form of a stock dividend rather than a cash dividend. The firm will allot new shares based on the current stock price of 12.50. In other words, for every 12.50 in dividends due to shareholders, a share of stock will be issued. How large will the stock dividend be relative to the firm's current market capitalist ion? (Hint. Remember that market capitalization = P0 number of shares outstanding.) e. If the plan in part d is implemented, how many new shares of stock will be issued, and by how much will the companys earnings per share be diluted?
Problem 2 The shareholders' equity of Tony Corporation revealed the following on June 30, 2018: Preference share, P100 par vale Preference share premium Ordinary share, P15 par value Ordinary share premium Ordinary share subscribed Retained earnings Notes payable Subscriptions receivable - ordinary P230,000 80,500 525,000 275,000 5,000 190,000 400,000 40,000 28. How much is the legal capital? 29. Using the data in problem #2, how much is the additional paid in capital? 30. Using the data in problem #2, how much is the total shareholders' equity? Problem 3 A corporation declared a 40% share dividend on its 60,000 shares of P20 par ordinary shares on a day when the market price is P50. 31. How much was debited to retained earnings on the date of declaration? 32. Using information in problem #3, what is the peso dividend per ordinary share? 33. Using information if problem #3 and assuming the share capital dividend declared is 4/40, what is the share premium from stock dividends?
Stock Expected Dividend Expected Capital Gain A $0 $10 B $5 $5 C $10 $0 A.)If each stock is priced at $175, what are the expected netpercentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%) and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains? B.) Suppose that investors pay 40% on tax dividends and 10% tax on capital gains. If stocks are priced to yield an after-tax return of 10%, what would A,B and C each sdell for? Assume the expected dividend is a level perpetuity. (Please answer B)
Q14 If the company’s Earnings available to equity shareholders are OMR 60,000, its cost of equity is 8% and overall cost of capital is 12%, what is the market value of the equity shares under Net Income Approach? a. OMR 500,000 b. OMR 750,000 c. OMR 900,000 d. Cannot be calculated
Problem 17-3 How Corporations Pay Dividends (LO1) Suppose that you own 3,400 shares of Nocash Corp. and the company is about to pay a 25% stock dividend. The stock currently sells at $125 per share. a. What will be the number of shares that you hold after the stock dividend is paid? (Do not round intermediate calculations.) O Answer is complete and correct. Number of shares 4,250 O b. What will be the total value of your equity position after the stock dividend is paid? (Do not round intermediate calculations.) O Answer is complete but not entirely correct. Total value 531,250 X
Stock Expected Dividend Expected Capital Gain A $0 $10 B $5 $5 C $10 $0 A.) If each stock is priced at $175, what are the expected net precentage returns on each stock to (i) a pension fund that does not pay taxes, (ii) a corporation paying tax at 21% (the effective tax rate on dividends received by corporations is 6.3%), and (iii) an individual with an effective tax rate of 10% on dividends and 5% on capital gains? B.) Suppose that investors pay 40% tax on dividends and 10% tax on capital gains. If stocks are priced to yield an after-tax return of 10%, what would A,B, and C each sell for? Assume the expected dividend is a level perpetuity.
es C raw ill ! Exercise 11-23 (Algo) Dividend yield computation and interpretation LO A1 Annual Cash Company Dividend per Share Etihad $ 10.00 United Lingus Allied 7.00 6.50 1.80 Compute the dividend yield for each of these four separate companies. Which company's stock would probably not be classified as an income stock? Complete this question by entering your answers in the tabs below. Company Choose Numerator: Etihad United Lingus Allied Required 1 Required 2 Compute the dividend yield for each of these four separate companies. 2 Market Value per Share # $136.99 74.47 63.11 117.52 3 Q Dividend Yield 54 $ 1 Choose Denominator: 1 = = = = = * 00 8
Question 6 Calculate the WACC for a company using the following information: Ordinary shares R2 000 Preference shares R5 000 Long-term debt R3 000 Shareholders of preference shares require a return of 12%. Shareholders of ordinary shares require a return of 8%. Financial loan bears interest at the prime rate of 7%.
15- The share capital of a firm is OMR 160000 and the net profit is OMR 32000. What is the return on equity? a. 15 percent b. 30 Percent c. 20 Percent d. All
Question 21 As the assistant to the CFO of Johnstone Inc., you must estimate its cost of common equity. You have been provided with the following data: D 0 = $0.80; P 0 = $22.50; and g L = 8.00% (constant). Based on the dividend growth model, what is the cost of common from reinvested earnings? a. 11.25% b. 10.69% c. 11.84% d. 12.43% e. 13.05% Muscarella Inc. has the following balance sheet and income statement data: Cash $ 14,000 Accounts payable $ 42,000 Receivables 70,000 Other current liabilities 28,000 Inventories 210,000 Total CL $ 70,000 Total CA $294,000 Long-term debt 70,000 Net fixed assets 126,000 Common equity 280,000 Total assets $420,000 Total liab. and equity $420,000 Sales $280,000 Net income $ 21,000 The new CFO thinks that inventories are excessive and could be lowered sufficiently to cause the current ratio to equal the industry average, 2.70,…
Question 20 FLAG QUESTION Consider the following Year 1 information for Terrier Treats (T) 12 13 Revenues $10,000 14 Total expenses including taxes $6,500 15 Total shares outstanding 100 16 Stock Price at the end of Year 1 $57.00 If T"s cost of equity is 17% and the current stock price is $50, what is the dividend payout ratio (1 (express as a % rounded to 1 digit after the decimal: x.x%) Answers 1 - 1 1. Previous Finish ESTIONS VERSION 2M.6.4 MacBook Pro

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