ABC Ltd, a public company intends to redeem 100000 $1 redeemable shares at $1.5each. the shares were originally issued at a premium of $0.3 per share. To finance the redemption, 80000 new $1 shares are issued at par at the same time. ABC Ltd also plans to reissue the 100,000 shares which have just been redeemed to the public at
The dividend growth is commonly expressed by the retention growth equation g = ROE x Retention Ratio. Recall that the retention ratio is the plowback or earnings retention, and is sometimes written as (1- Dividend Payout Ratio). In 2008 the MKA Corporation reports EPS of $5.75, ROE equals 15% and the company has a dividend p
1. Nonconstant Growth. Planned Obsolescence has a product that will be in vogue for 3 years, at which point the firm will close up shop and liquidate the assets. As a result, forecast dividends are DIV1 = $2, DIV2 = $2.50, and DIV3 = $18. What is the stock price if the discount rate is 12%? 2. Dividend Growth. Grandiose Growt
Dividends are said to be the basis for the value of stocks. If that's true, how do we explain the fact that companies that pay no dividends often have substantial market value? (Such companies are usually relatively young and in high growth fields.) First explain the phenomenon in terms of the individual valuation model (
Dividends have been in the news often due to the fact that government would provide tax benefits to dividend paying companies. Technology companies typically pay low or no dividends since they reinvest cash flows in research and development to fund future growth. However, as many technology companies mature (e.g. Microsoft, Dell
What are the definitions of stock dividends and stock splits? And what are the primary reasons for a firm to declare a stock split or stock dividend?
(Choosing financial targets) Bixton Company's new chief financial officer is evaluating Bixton's capital structure. She is concerned that the firm might be underleveraged, even though the firm has larger-than-average research and development and foreign tax credits when compared to other firms in its industry. Her staff prepared
From an accounting perspective, why would a company split its shares? What are the advantages and disadvantages? How would you report the split?
Assume all firms have the same expected dividends. If they have different expected returns, how will their market values and expected returns be related? What about the relation between their dividends yields and expected returns?
Discuss the tradeoff between dividends and growth; elaborate on the use and limitations of the Dividend-Discount model.
Raggio, Inc., has 100,000 shares of stock outstanding. Each share is worth $80, so the company's market value of equity is $8,000,000. Suppose the firm issues 20,000 new shares at the following prices: $80, $75, and $65. What will the effect be of each of these alternative offering prices on the existing price per share?
Microtech Corporation is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Microtech to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly at a rate of 50 percent per year during Years 4 and 5. After Year 5, the company's dividend is expected to grow at a constant rate of 8 percent per year indefinitely. If the required return on the stock is 15 percent, what is the intrinsic value of the stock today?
7. Microtech Corporation is expanding rapidly, and it currently needs to retain all of its earnings, hence it does not pay any dividends. However, investors expect Microtech to begin paying dividends, with the first dividend of $1.00 coming 3 years from today. The dividend should grow rapidly at a rate of 50 percent per year dur
Suppose your employer offers you a chose between a 5000 bonus and 100 shares of the company stock. Whichever one you choose will be awarded today. The stock is currently trading for $63.per share. a) Suppose that if you receive the stock bonus, you are free to trade it. Which form of the bonus would you chose? What is its val
A company has a target capital structure that consists of 40 percent debt and 60 percent equity. The company's capital budget for next year is $10 million. Axel expects net income of $8 million. The company's cost of capital is 12 percent. a. How much will the company pay out in dividends if it follows a residual dividend pol
You are a shareholder in a S Corporation. The corporation earns $2 per share before taxes. Once it has paid taxes it will distribute the rest of its earnings to you as a dividend. The corporate tax rate is 40%, and the personal tax rate on (both dividend and non-dividend) income is 30%. How much is left for you after all taxes a
A company needs to raise $21 million to expand its operations nationally. The company will sell new shares of common stock using a general cash offering. The underwriters charge an 8 percent spread. The administrative costs are estimated at $480,000. How many shares of stock must be sold if the offer price is $22 a share?
Consider the following information. How many shares do you hold today if you bought 1,000 shares of this stock at the beginning of 1985? 1986 - 10 percent stock dividend 1987 - 10 percent stock dividend 1988 - 25 percent stock dividend 1989 - 100 percent stock dividend 1994 - 2-for-1 stock split 2007 - 100 percent stock di
Ten years ago a stock paid a $0.30 dividend. Since then it has split 2- for-1 twice. The current dividend is $0.16. If you have a required rate of return of 14 percent, what is the most you can pay for this stock?
Elizabeth Company reported the following amounts in the stockholders' equity section of its December 31, 2010, balance sheet. Preferred Stock, 8%, $100 par (10,000 shares authorized, 2,000 shares issued) $200,000 Common Stock, $5 par (100,000 shares authorized, 20,000 shares issued) $100,000 Additional paid-in capital $12
Q12: The stockholders' equity portion of Brimstone Tire Company follows: Common Stock (2.0 million shares at $10 par) $20,000,000 Capital in excess of par 17,000,000 Retained earnings 33,000,000
DK Corp. pays no dividends for 2 years. At the end of third year it pays a $2.00 dividend and then establishes a constant dividend growth rate. What should be the appropriate value of the company's common stock based on the following information? o Return on Equity of the company at the 3rd year = 0.12 or 12% o Payout ratio
Corporation A has just paid its annual dividend of $2.50 a share. This dividend is expected to grow at a rate of 5% annually forever, and the appropriate discount rate for a company with Company A's risk profile at 11%. Use the dividend discount model to determine the value of a share of Polar Bear's stock.
How do I go about the mathematical part to this question? The fund you represent is a significant shareholder in IM Industries which just paid a dividend of $5.25 per share and is currently expected to grow in perpetuity at 5% each year. Management has proposed a significant re-structuring of the business which will cost a l
For several years Orbon, Inc., has followed a policy of paying a cash dividend of $1.20 per share and having a 10% stock dividend. In the 2011 annual report, Orbon reported restated earnings per share for 2009 of $2.70. (a) Calculate the originally reported earnings per share for 2009. (Round your answer to 2 decimal places)
Please help with the following problem. On January 1, 2010, Metco, Inc., had 264,000 shares of $2 par value common stock issued and outstanding. On March 15, 2010, Metco, Inc., purchased for its treasury 3,100 shares of its common stock at a price of $39.00 per share. On August 10, 2010, 640 of these treasury shares were sol
1. Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows: Price to Public $5 per share Number of shares 3 million Proceeds to Beedles $14,000,000 The out-of-pocket expenses incurred by Security Brokers in the design and distribution of the issue were $300,000. What profit or loss would security Brokers incur if the issue were sold to the publics at the following average price? a. $5 per share b. $6 per share c. $4 per share 2. The Beranek Company, whose stock price is now $25, needs to raise $20 million in common stock. Underwriters have informed the firm's management that they must price the new issue to the public at $22 per share because of signaling effects. The underwriters' compensation will be 5% of the issue price, so Beranek will net $20.90 per share. The firm will also incur expenses in the amount of $150,000. How many shares must the firm sell to net $20 million after underwriting and flotation expenses?
1. Security Brokers Inc. specializes in underwriting new issues by small firms. On a recent offering of Beedles Inc., the terms were as follows: Price to Public $5 per share Number of shares 3 million Proceeds to Beedles $14,000,000 The out-of-pocket expenses incurred by Security Brokers in the design and distribution of
A debt issue contains a dividend limitation. Cumulative dividends cannot exceed the sum of $25 million and 60% of cumulative net income since the debt was issued three years ago. The firm earned $50 million net income in each of those years. It paid total dividends of $15 million and $20 million the past two years and $25 millio
Fast Grow Corporation is expecting dividends to grow at a 20% rate for the next 2 years. The corporation just paid a $2 dividend and the next dividend will be paid 1 year from now. After 2 years of rapid growth dividends are expected to grow at a constant rate of 9% forever. a/ If the required return is 14%, what is the value
Fritz Corporation has 800,000 shares of preferred stock and 1,800,000 shares of common stock. The cumulative preferred stock has a stated dividend of $2.50 per share. Under normal conditions, Kreisler pays out 30% of earnings available to common stockholders; however, because of a severe recession, Fritz retained all earnings
If you are a shareholder in a profitable company, would you expect a dividend to be paid, or would you be satisfied if all earnings stayed within the organization as retained earnings? Please explain!