PRIN.OF CORPORATE FINANCE
PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 16, Problem 1PS

Dividend payments* In 2017, Entergy paid a regular quarterly dividend of $.89 per share.

  1. a. Match each of the following dates.
(AI) Friday, October 27 (BI) Record date
(A2) Tuesday, November 7 (B2) Payment date
(A3) Wednesday, November 8 (B3) Ex-dividend date
(A4) Thursday, November 9 (B4) Last with-dividend date
(A5) Friday, December 1 (B5) Declaration date
  1. b. On one of these dates, the stock price fell by about $.89. Which date? Why?
  2. c. Entergy’s stock price in November 2017 was about $86. What was the dividend yield?
  3. d. Entergy’s forecasted earnings per share for 2017 were about $6.90. What was the payout ratio?
  4. e. Suppose that Entergy paid a 10% stock dividend. What would happen to the stock price?

a)

Expert Solution
Check Mark
Summary Introduction

To determine: The appropriate events in respective dates.

Explanation of Solution

Following are the appropriates matched with respective events:

DateEvent
Friday, October 27Declaration date
Tuesday, November 7Last with-dividend date
Wednesday, November 8Ex-dividend date
Thursday, November 9Record date
Friday, December 1Payment date

b)

Expert Solution
Check Mark
Summary Introduction

To determine: The date at which the stock price is fell by $0.89 and the reason.

Explanation of Solution

The date is on November 8th and it was the ex-dividend date, the fall in price due to the buyers of the stock on the ex-dividend date are not included in the company’s books prior to the record date and therefore they are not entitled to get the dividend and the price is fall by approximately the dividend amount.

c)

Expert Solution
Check Mark
Summary Introduction

To determine: The dividend yield of the company E.

Dividend yield is the ratio between a firm’s yearly dividend to its share price and it is denoted as percentage.

Explanation of Solution

Dividend yield = Annual dividendStock price=($0.89×4)$86=$3.56$86=0.0414or 4.14%.

Therefore, the dividend yield of company E is 4.14%.

d)

Expert Solution
Check Mark
Summary Introduction

To determine: The payout ratio of the company E.

Payout ratio is the ratio which shows the amount of dividend that a firm gives out to its shareholders from its current earnings.

Explanation of Solution

Payout ratio = Annual dividendAnnual earnings=($0.89×4)$6.90=$3.56$6.90=0.516or 51.6%.

Therefore, the payout ratio of the company E is 51.16%.

e)

Expert Solution
Check Mark
Summary Introduction

To determine: The impact on stock price if the company E paid a 10% stock dividend.

Explanation of Solution

If the stock dividend is increased the number of shares outstanding without changing the market value of the firm, hence, the value per share will decline.

Expected stock price = Current price(1+dividend payout ratio)=$861.10=$78.18

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