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Flotation costs and dividend policies

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(Flotation Costs and issue size)
Your Firm needs to raise $10 million. Assuming that flotation costs are expected to be $15 per share, and that the market price of the stck is $120, how many shares would have to be issued? What is the dollar size of the issue?

(Dividend policies) The earnings for Crystal Cargo Inc. has been predicted for the next 5 years and are as follows. There are 1 million shares outstanding. Determine the yearly dividend per share to be paid if the following policies are enacted:

A.) A constant dividend payout ratio of 50 percent
B.) A stable dollar dividend targeted at 50 percent of the earnings over the 5-year period
C.) A small, regular dividend of $0.50 per share plus a year-end extra when the profits in ny year exceeds $1,500,000. The year-end extra dividend will equal 50 percent of profits exceeding $1,500,000.

Year Profit After Taxes
1 $1,400,000
2 2,000,000
3 1,860,000
4 900,000
5 2,800,000

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Solution Summary

The solution explains how to calculate the issue size and payment of dividend based on different dividen policies

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1. The market price is $120 and the flotation cost is $15. This implies that shares ...

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