55.
|
Steve purchased 300 shares of Alpha Beta stock on May 9. On May 15, he purchased another 300 shares and then on May 22 he purchased a final 400 shares of Alpha Beta stock. The company declared a dividend of $1.60 a share on April 30 to holders of record on Friday, May 23. The dividend is payable on June 2. How much dividend income will Steve receive on June 2 from Alpha Beta?
Dividend received = $1.60(300 + 300) = $960
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-01 Dividend types and how dividends are paid. Section: 17.1 Topic: Ex-dividend date |
56.
|
On July 7, you purchased 500 shares of Wagoneer, Inc. stock for $21 a share. On August 1, you sold 200 shares of this stock for $28 a share. You sold an additional 100 shares on August 17 at a price of $25 a share. The company declared a $0.95 per share dividend on August 4 to holders of record as of Wednesday, August 15. This dividend is payable on September 1. How much dividend income will you receive on September 1 as a result of your ownership of Wagoneer stock?
Dividend received = $0.95 × (500 - 200) = $285
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-01 Dividend types and how dividends are paid. Section: 17.1 Topic: Ex-dividend date |
57.
|
Webster United is paying a $1.10 per share dividend today. There are 350,000 shares outstanding with a market price of $25 per share. Ignore taxes. Before the dividend, the company had earnings per share of $1.74. As a result of this dividend, the:
Price-earnings ratio after the dividend = ($25 - $1.10)/$1.74 = 13.74
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-02 The issues surrounding dividend policy decisions. Section: 17.6 Topic: Price-earnings ratio |
58.
|
You own 2,200 shares of Deltona Hardware. The company has stated that it plans on issuing a dividend of $0.42 a share at the end of this year and then issuing a final liquidating dividend of $2.90 a share at the end of next year. Your required rate of return on this security is 16 percent. Ignoring taxes, what is the value of one share of this stock to you today?
Value per share = ($0.42/1.161) + ($2.90/1.162) = $2.52
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-01 Dividend types and how dividends are paid. Section: 17.2 Topic: Stock value |
59.
|
Al owns 800 shares of The Good Life Co. The company recently issued a statement that it will pay a dividend per share of $0.55 this year and a $0.60 per share dividend next year. Al does not want any dividend income this year but does want as much dividend income as possible next year. Al earns 9 percent on his investments. Ignoring taxes, what will Al's total homemade dividend be next year?
Homemade dividend income for next year = [($0.55 × 1.09) + $0.60] × 800 = $959.60
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-02 The issues surrounding dividend policy decisions. Section: 17.2 Topic: Homemade dividend |
60.
|
Jenningston Mills has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?
Price per share = $3,750/250 = $15
Number of shares repurchased = (0.25 × $1,200)/$15 = 20 shares New EPS = $420/(250 - 20) = $1.83 |
AACSB: Analytic
Blooms: Analyze Difficulty: 1 Easy Learning Objective: 17-04 Why share repurchases are an alternative to dividends. Section: 17.6 Topic: Stock repurchase |
61.
|
Blasco's has a market value equal to its book value. Currently, the firm has excess cash of $1,332, other assets of $11,674, and equity of $7,200. The firm has 1,200 shares of stock outstanding and net income of $838. Blasco's has decided to spend one-third of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?
Price per share = $7,200/1,200 = $6
Number of shares repurchased = [(1/3) × $1,332]/$6 = 74 New number of shares outstanding = 1,200 - 74 = 1,126 shares |
AACSB: Analytic
Blooms: Analyze Difficulty: 1 Easy Learning Objective: 17-04 Why share repurchases are an alternative to dividends. Section: 17.6 Topic: Stock repurchase |
62.
|
Tucker's National Distributing has a current market value of equity of $10,665. Currently, the firm has excess cash of $640, total assets of $22,400, net income of $3,210, and 500 shares of stock outstanding. Tucker's is going to use all of its excess cash to repurchase shares of stock. What will the stock price per share be after the stock repurchase is completed?
Current price per share = $10,665/500 = $21.33
Number of shares repurchased = $640/$21.33 = 30 New number of shares outstanding = 500 - 30 = 470 New equity = $10,665 - $640 = $10,025 New price per share = $10,025/470 = $21.33 |
AACSB: Analytic
Blooms: Analyze Difficulty: 1 Easy Learning Objective: 17-04 Why share repurchases are an alternative to dividends. Section: 17.6 Topic: Stock repurchase |
63.
|
The equity of Blooming Roses has a total market value of $16,000. Currently, the firm has excess cash of $1,400 and net income of $15,400. There are 750 shares of stock outstanding. What will be the percentage change in the stock price per share if the firm pays out all of its excess cash as a cash dividend?
Price per share before cash dividend = $16,000/750 = $21.33
Price per share after cash dividend = ($16,000 - $1,400)/750 = $19.47 Percentage change in price = ($19.47 - $21.33)/$21.33 = -8.75 percent |
AACSB: Analytic
Blooms: Analyze Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.6 Topic: Ex-dividend stock price |
64.
|
Delaware Trust has 450 shares of common stock outstanding at a market price per share of $27. Currently, the firm has excess cash of $400, total assets of $28,900, and net income of $1,320. The firm has decided to pay out all of its excess cash as a cash dividend. What will the earnings per share be after this dividend is paid?
Earnings per share = $1,320/450 = $2.93
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.6 Topic: Cash dividend |
65.
|
Josh's, Inc. has 7,000 shares of stock outstanding with a par value of $1.00 per share and a market value of $32 a share. The balance sheet shows $82,000 in the capital in excess of par account, $7,000 in the common stock account, and $64,800 in the retained earnings account. The firm just announced a 10 percent stock dividend. What is the value of the capital in excess of par account after the dividend?
Change in capital in excess of par = (7,000 shares × 0.10) × ($32 - $1) = $21,700
New capital in excess of par account balance = $82,000 + $21,700 = $103,700 |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-04 Why share repurchases are an alternative to dividends. Section: 17.8 Topic: Small stock dividend |
66.
|
Randall's, Inc. has 20,000 shares of stock outstanding with a par value of $1.00 per share. The market value is $12 per share. The balance sheet shows $42,000 in the capital in excess of par account, $20,000 in the common stock account, and $50,500 in the retained earnings account. The firm just announced a 5 percent (small) stock dividend. What will the balance in the retained earnings account be after the dividend?
Retained earnings = [(20,000 shares × 0.05) × $12 × -1] + $50,500 = $38,500
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Small stock dividend |
67.
|
Southern Fried Chicken has 8,000 shares of stock outstanding with a par value of $1 per share and a market value of $34 per share. The balance sheet shows $45,000 in the capital in excess of par account, $8,000 in the common stock account, and $152,000 in the retained earnings account. The firm just announced a 5 percent stock dividend. What will total owners' equity be after the dividend?
Total equity will not change as this is a small stock dividend.
Total equity = $45,000 + $8,000 + $152,000 = $205,000 |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Small stock dividend |
68.
|
Val's Marina Supply has 3,500 shares of stock outstanding with a par value of $1.00 per share and a market value of $19 per share. The balance sheet shows $3,500 in the common stock account, $24,000 in the capital in excess of par account, and $31,400 in the retained earnings account. The firm just announced a 100 percent stock dividend. What is the value of the capital in excess of par account after the dividend?
The capital in excess of par account will remain at $24,000 as it does not change with a large stock dividend.
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Large stock dividend |
69.
|
Kurt's Market has 8,000 shares of stock outstanding with a par value of $1 per share and a market value of $13 per share. The balance sheet shows $8,000 in the common stock account, $26,000 in the capital in excess of par account, and $36,800 in the retained earnings account. The firm just announced a 100 percent stock dividend. What will be the balance in the retained earnings account after this dividend?
Retained earnings = $36,800 - [(8,000 shares × 1.0) × $1] = $28,800
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Large stock dividend |
70.
|
The Tanning Bed has 10,000 shares of stock outstanding with a par value of $1 per share and a market value of $8 per share. The balance sheet shows $10,000 in the common stock account, $60,000 in the capital in excess of par account, and $94,300 in the retained earnings account. The firm just announced a 100 percent stock dividend. What will be the value of the common stock account after the dividend?
Common stock = [(10,000 shares × 1.0) × $1] + $10,000 = $20,000
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Large stock dividend |
71.
|
Verbal Communications, Inc., has 14,000 shares of stock outstanding with a par value of $1 per share and a market value of $32 per share. The firm just announced a 100 percent stock dividend. What is the market value per share after the dividend?
Market value per share = (14,000 × $32)/(14,000 × 2) = $16
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Large stock dividend |
72.
|
Della's Pool Halls has 12,000 shares of stock outstanding with a par value of $1 per share and a market price of $39 a share. The firm just announced a 4-for-3 stock split. How many shares of stock will be outstanding after the split?
Number of shares = 12,000 × 4/3 = 16,000 shares
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
73.
|
Alfonzo's Italian House has 25,000 shares of stock outstanding with a par value of $1 per share and a market price of $28 a share. The firm just announced a 5-for-3 stock split. What will the market price per share be after the split?
Market price per share = $28 × 3/5 = $16.80
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
74.
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South Shore Limited has 21,000 shares of stock outstanding with a par value of $1 per share and a market price of $7.50 a share. The firm just announced a 5-for-2 stock split. What will the par value of the stock be after the split?
Par value = $1 × (2/5) = $0.40
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
75.
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Mario's has 18,000 shares of stock outstanding with a par value of $1 per share and a market price of $4 a share. The balance sheet shows $18,000 in the common stock account, $368,000 in the paid in surplus account, and $64,000 in the retained earnings account. The firm just announced a 5-for-1 stock split. What will the paid in surplus account value be after the split?
A stock split does not change the total value of the paid in surplus account.
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
76.
|
Prezario's has 25,000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $847,000. Currently, the retained earnings account balance is $428,000 and the capital in excess of par value account balance is $187,000. The company just announced a 3-for-1 stock split. What is the common stock account balance after the stock split?
Common stock account value before the stock split = 25,000 × $1 = $25,000
A stock split does not change the total value of the common stock account. |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
77.
|
The Peanut Shack has 6,5000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $145,600. The company just announced a 3-for-2 stock split. What will the market price per share be after the split?
Market price per share = ($145,600/6,500) × 2/3 = $14.93
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
78.
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Western Mountain Water has 11,000 shares of stock outstanding with a par value of $1 per share. The current market value of the firm is $135,000. The balance sheet shows a capital in excess of par value account balance of $68,000 and retained earnings of $49,000. The company just announced a 2-for-1 stock split. What will the capital in excess of par value account balance be after the split?
The paid in surplus account will remain at $68,000 as a stock split has no effect on this account.
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
79.
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The Peace River Corporation has 62,000 shares of stock outstanding at a market price of $48 a share. The company has just announced a 3-for-2 stock split. How many shares of stock will be outstanding after the split?
Number of shares = 62,000 × 3/2 = 93,000 shares
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
80.
|
Cooper Brands, Inc., has 68,000 shares of stock outstanding at a market price of $63 a share. The par value is $1 per share. The company has just announced a 5-for-4 stock split. What will the market price per share be after the split?
Market price per share = $63 × 4/5 = $50.40
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
81.
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The Mining Co. has 20,000 shares of stock outstanding. The current market value of the firm is $328,000. The company has retained earnings of $27,000, capital in excess of par value of $160,000, and a common stock account value of $40,000. The company is planning a 2-for-5 reverse stock split. What will the par value per share be after the split?
Par value per share = ($40,000/20,000 shares) × 5/2 = $5.00
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Reverse stock split |
82.
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East Coast Marina has 220,000 shares of stock outstanding. The current market value of the firm is $18.92 million. The company has retained earnings of $3.8 million, paid in surplus of $6.7 million, and a common stock account value of $220,000. The company is planning a 3-for-2 stock split. What will the market price per share be after the split?
Market price per share = ($18.92m/220,000 shares) × 2/3 = $57.33
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
83.
|
Jean's Warehouse has 16,000 shares of stock outstanding. The current market value of the firm is $768,000. The company has retained earnings of $130,000, paid in surplus of $321,000, and a common stock account value of 16,000. The company is planning a 5-for-3 stock split. What will the retained earnings account value be after the split?
The retained earnings will remain at $130,000 as a stock split does not affect the balance.
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
84.
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The common stock of Checkers, Inc. is selling for $56 a share and the par value per share is $1. Currently, the firm has a total market value of $812,000. How many shares of stock will be outstanding if the firm does a 3-for-2 stock split?
Number of shares = ($812,000/$56) × 3/2 = 21,750 shares
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
85.
|
The common stock of Gillen Entertainment is selling for $65 a share. The par value per share is $1. Currently, the firm has a total market value of $936,000. How many shares of stock will be outstanding if the firm does a 5-for-2 stock split?
Number of shares = ($936,000/$65) × 5/2 = 36,000 shares
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock split |
86.
|
Purvis Lawn Products has 18,000 shares of stock outstanding at a market price of $5.50 a share. What will the market price per share be if the company does a 1-for-4 reverse stock split?
Market price = $5.50 × 4/1 = $22
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Reverse stock split |
87.
|
The Olive Vase has 56,000 shares of stock outstanding with a par value of $1 per share and a market value of $11 a share. The company just announced a 3-for-4 reverse stock split. Currently, you own 500 shares of this stock. What will the total value of your shares be after the reverse stock split?
The total value of your shares will not change.
Total value = 500(3/4) × $11(4/3) = $5,500 |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Reverse stock split |
88.
|
The Green Florist has 28,000 shares of stock outstanding with a par value of $1 per share and a market value of $7 a share. The company just announced a 2-for-5 reverse stock split. Currently, you own 300 shares of this stock. How many shares will you own after the reverse stock split?
Number of shares = 300 × 2/5 = 120 shares
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Reverse stock split |
89.
|
City Center Pharmacy has 11,500 shares of stock outstanding with a par value of $1 per share and a market value of $12 a share. The company just announced a 3-for-7 reverse stock split. What will the market value per share be after the reverse stock split?
Market value per share = $12 × 7/3 = $28.00
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Reverse stock split |
90.
|
The Green Fiddle has declared a $5 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Green Fiddle stock sells for $71.50 per share, and the stock is about to go ex-dividend. What will the ex-dividend price be?
Ex-dividend price = $71.50 - [$5 × (1 - 0.15)] = $67.25
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 17-1 Learning Objective: 17-01 Dividend types and how dividends are paid. Section: 17.1 Topic: Ex-dividend price |
91.
|
The owners' equity accounts for Blueswell Industries are shown here:
If Blueswell Industries declares a 1-for-5 reverse stock split, there will be ____ shares outstanding at a par value of _____ per share.
New shares = 9,000 × 1/5 = 1,800 shares
New par value = $1 × 5/1 = $5 |
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 17-3 Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Reverse stock split |
92.
|
The Turtle Cave currently has 160,000 shares of stock outstanding that sell for $60 per share. Assume no market imperfections or tax effects exist. What will the new share price be if the firm declares a 10 percent stock dividend?
New price = $60 (1/1.10) = $54.55
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 17-4 Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock dividend |
93.
|
Glendale Paving currently has 120,000 shares of stock outstanding that sell for $54 per share. Assume no market imperfections or tax effects exist. What will the new share price be if the firm declares a 40 percent stock dividend?
New price = $54 (1/1.40) = $38.57
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 17-4 Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock dividend |
94.
|
The balance sheet for Apple Pie Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.
The company has declared a dividend of $1.80 per share. The stock goes ex-dividend tomorrow. Ignore any tax effects. What will the price of the stock be tomorrow?
Tomorrow's stock price = ($207,000/5,000) - $1.80 = $39.60
|
AACSB: Analytic
Blooms: Apply Difficulty: 1 Easy EOC: 17-5 Learning Objective: 17-01 Dividend types and how dividends are paid. Section: 17.1 Topic: Cash dividend |
95.
|
The balance sheet for Apple Pie Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.
The company has announced that it is going to repurchase $4,350 worth of stock. What will the price of the stock be after this repurchase?
Current price per share = $175,000/5,000 = $35
Number of shares repurchased = $4,350/$35 = 124.29 New shares outstanding = 5,000 - 124.29 = 4,875.71 New share price = ($175,000 - $4,350)/4,875.71 = $35 |
AACSB: Analytic
Blooms: Analyze Difficulty: 1 Easy EOC: 17-6 Learning Objective: 17-04 Why share repurchases are an alternative to dividends. Section: 17.6 Topic: Stock repurchase |
96.
|
The market value balance sheet for Inbox Manufacturing is shown here. Inbox has declared a 15 percent stock dividend. The stock goes ex-dividend tomorrow (the chronology for a stock dividend is similar to that for a cash dividend). There are 13,000 shares outstanding. What is the ex-dividend stock price?
New price = $376,000/(13,000 × 1.15) = $25.15
|
AACSB: Analytic
Blooms: Analyze Difficulty: 1 Easy EOC: 17-7 Learning Objective: 17-03 The difference between cash and stock dividends. Section: 17.8 Topic: Stock dividend |
97.
|
You own 1,000 shares of stock in Avondale Corporation. You will receive an 80-cent per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $40 per share. The required return on Avondale stock is 14 percent. What will your dividend income be this year if you use homemade dividends to create two equal annual dividend payments?
P0 = ($0.80/1.14) + ($40/1.142) = $31.48
$31.48 = (D/1.14) + (D/1.142); D = $19.117 Dividend income = 1,000 × $19.117 = $19,117 |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium EOC: 17-14 Learning Objective: 17-02 The issues surrounding dividend policy decisions. Section: 17.2 Topic: Homemade dividend |
98.
|
You own 1,500 shares of stock in Avondale Corporation. You will receive a $0.80 per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $35 per share. The required return on Avondale stock is 16 percent. You only want $200 total in dividends in year one and accomplish this by using homemade dividends. What will your total dividend amount be in year two?
Dividends received in one year = 1,500 × $0.80 = $1,200
Price of stock in one year = $35/1.16 = $30.1724 Number of shares purchased = ($1,200 - $200)/$30.1724 = 33.142857 shares Dividend in year two = $35 × (1,500 + 33.142857) = $53,660 |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium EOC: 17-15 Learning Objective: 17-02 The issues surrounding dividend policy decisions. Section: 17.2 Topic: Homemade dividend |
99.
|
Built Rite Corp. is evaluating an extra dividend versus a share repurchase. In either case, $5,500 would be spent. Current earnings are $0.80 per share, and the stock currently sells for $33 per share. There are 250 shares outstanding. Ignore taxes and other imperfections. You own one share of stock in this company. If the company issues the dividend, your total investment will be worth ____ as compared to ____ if the company opts for a share repurchase.
Dividend per share = $5,500/250 = $22
Ex-dividend stock price = $33 - $22 = $11 Shareholder value with dividend option = $22 + $11 = $33 Shares repurchased = $5,500/$33 = 166.6667 Shareholder value with repurchase = $33 Shareholder value if shares held = $33 |
AACSB: Analytic
Blooms: Analyze Difficulty: 2 Medium EOC: 17-16 Learning Objective: 17-04 Why share repurchases are an alternative to dividends. Section: 17.6 Topic: Stock repurchase |
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