Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 13, Problem 8SP
a)
Summary Introduction
To determine: The yearly dividend per share.
b)
Summary Introduction
To determine: The yearly dividend per share.
c)
Summary Introduction
To determine: The yearly dividend per share.
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Final earnings estimate for Alltime Fitness Center have been prepared for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock outstanding. As assistant to the CFO, you are asked to determine the yearly dividend per share to be
paid depending on the following possible policies:
A stable dollar dividend targeted at 40 percent of earnings over a 5-year period.
A small, regular dividend of $0.60 per share plus a year-end extra when the profits in any year exceed $20 million. The year-end extra dividend will equal 50 percent of profits exceeding $20 million.
A constant dividend payout ratio of 40 percent.
Year
Profit after tax ($’million)
1
18
2
21
3
19
4
23
5
25
Explain the pros and cons of each dividend policie
Final earnings estimate for Alltime Fitness Center have been prepared for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock outstanding. As assistant to the CFO, you are asked to determine the yearly dividend per share to be paid depending on the following possible policies:
A stable dollar dividend targeted at 40 percent of earnings over a 5-year period.
A small, regular dividend of $0.60 per share plus a year-end extra when the profits in any year exceed $20 million. The year-end extra dividend will equal 50 percent of profits exceeding $20 million.
A constant dividend payout ratio of 40 percent.
Year
Profit after tax ($’million)
1
18
2
21
3
19
4
23
5
25
(a) Explain the pros and cons of each dividend policies.
Imagine yourself as a financial manager in a company, and you are requested to provide a financial report including the calculation of the current market rate of return from the investor's perspective for each of the four investment options, taking into consideration the followings:
Common stocks available for investment are:
2,500,000 shares of common stock, with a par balance of $1 per share.
The current market value of the common share is $24.43 per share.
Annual earnings per share $1.95.
Bonds available for investment
$1,750,000 bonds (A) with an interest of 6.25%, with a current market value of $104 per bond (price of $104 per $100).
$2,250,000 Notes B, with an interest rate of 5.75%, with a current market value of $94.50 (price $94.50 per $100 note).
The corporate tax rate is 35%.
Preferred shares available for investment
950,000 outstanding preferred shares with a par value of $10 with a preferential dividend payment…
Chapter 13 Solutions
Foundations Of Finance
Ch. 13 - What is meant by the term dividend payout ratio?Ch. 13 - Prob. 2RQCh. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Prob. 7RQCh. 13 - Prob. 8RQCh. 13 - Prob. 9RQCh. 13 - Prob. 10RQ
Ch. 13 - Prob. 1SPCh. 13 - (Dividend policy and the issue of new shares of...Ch. 13 - Prob. 3SPCh. 13 - (Dividend policy and stock prices) The issue as to...Ch. 13 - (Residual dividend policy) FarmCo, Inc. follows a...Ch. 13 - (Legal restrictions on dividend payments) Describe...Ch. 13 - (Practical considerations in setting dividend...Ch. 13 - Prob. 8SPCh. 13 - Prob. 9SPCh. 13 - Prob. 10SPCh. 13 - Prob. 11SPCh. 13 - Prob. 12SPCh. 13 - Prob. 13SPCh. 13 - Prob. 14SPCh. 13 - Prob. 15SPCh. 13 - Prob. 16SPCh. 13 - Prob. 1.1MCCh. 13 - The executive vice-president in charge of finance...Ch. 13 - Prob. 2.1MCCh. 13 - Prob. 2.2MCCh. 13 - Prob. 2.3MC
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