Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 8, Problem 8.15E
Exercise 8.15
LO 3
Dividend dates-market price effects O'Garro, Inc., has paid a regular quarterly cash dividend of $0.70 per share for several years. The common stock is publicly traded. On February 21 of the current year, O'Garro’s board of directors declared the regular first-quarter dividend of $0.70 per share payable on March 30 to stockholders of record on March 15.
Required:
As a result of this dividend action, state what you would expect to happen to the market price of the common stock of O'Garro, Inc., on each of the following dates. Explain your answers.
- February 21.
- March 13.
- March 15.
- March 30.
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QUESTION FOUR
The details of dividends paid by Cool Ltd. on its existing equity shares of $10 each for the past
six years is given below:
Year
2004 2005 2006 2007 2008 2009
Dividend per share
1.05 1.10 1.l6 1.21
1.27 1.34
The current market price of the equity shares is $40. It is expected to maintain the fixed
dividend payout ratio in the future. The company has issued new equity shares of $10
each and the cost of flotation is $0.50 per share. The expected dividend to be declared
for the current year is $1.40.
D1
NP =
(K. – g)
Where
NP represents Net Proceeds from shares
K, represents cost of equity capital
g represents a constant growth rate
Di represents annual dividend per share in the next period Do (1+g)
Using the information above calculate the cost of equity capital.
Problem 9-18 Finding the Dividend
Matterhorn Corporation stock currently sells for $80 per share. The market requires a return of 9.8 percent on the firm’s stock. If the company maintains a constant 2.9 percent growth rate in dividends, what was the most recent dividend per share paid on the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Question 2Salsa Inc. estimates that this year’s earnings will be $75 million. There are 12 million sharesoutstanding at a price of $27.50 per share. Salsa had been following a 100% dividend payoutpolicy until now but would now like to shift to the Residual Dividend policy for this year.Dividends from this year’s earnings are paid next year.a) What is the EPS and DPS for Salsa under the 100% dividend payout policy?b) If the planned capital outlay is for $72 million and the target capital structure is 1.5:1,will Salsa Inc. be able to pay dividends as per the Residual Dividend Policy? Ifso, whatwill be the dividend pershare? Investorsrequire a 22.72% rate of return. Ignoretaxes.c) If Salsa Inc. shifts from a 100% payout policy to the residual dividend policy, whatimpact will this have on its stock price, assuming the firm earns 22.72% as its ROE?Support your argument through relevant computations. Which argument of thedividend policy decision would you have demonstrated through this…
Chapter 8 Solutions
Accounting: What the Numbers Mean
Ch. 8 - Prob. 8.1MECh. 8 - Mini-Exercise 8.2 LO 2 Preferred stock-calculate...Ch. 8 - Prob. 8.3MECh. 8 - Mini-Exercise 8.4 LO 6 Treasury stock transactions...Ch. 8 - Prob. 8.5ECh. 8 - Exercise 8.6 Review exercise-calculate net income...Ch. 8 - Prob. 8.7ECh. 8 - Exercise 8.8 Review exercise-calculate retained...Ch. 8 - Prob. 8.9ECh. 8 - Prob. 8.10E
Ch. 8 - Prob. 8.11ECh. 8 - Prob. 8.12ECh. 8 - Prob. 8.13ECh. 8 - Prob. 8.14ECh. 8 - Exercise 8.15 LO 3 Dividend dates-market price...Ch. 8 - Exercise 8.16 LO 3 Ex-dividend date-market price...Ch. 8 - Prob. 8.17ECh. 8 - Prob. 8.18ECh. 8 - Prob. 8.19ECh. 8 - Prob. 8.20ECh. 8 - Prob. 8.21ECh. 8 - Prob. 8.22ECh. 8 - Prob. 8.23PCh. 8 - Prob. 8.24PCh. 8 - Prob. 8.25PCh. 8 - Prob. 8.26PCh. 8 - Prob. 8.27PCh. 8 - Problem 8.28 LO 1, 2, 4, 6 Transaction...Ch. 8 - Problem 8.29 LO 1, 2, 4, 6 Transaction...Ch. 8 - Problem 8.30 LO 1. 2, 4, 6 Transaction...Ch. 8 - Prob. 8.31PCh. 8 - Prob. 8.32PCh. 8 - Prob. 8.33CCh. 8 - Prob. 8.34CCh. 8 - Prob. 8.35CCh. 8 - Case 8.36 LO 1, 2, 7 Capstone analytical review of...
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