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Dividend Yield & P/E Ratio & Rights Offerings

1.Stock in Rich Corporation is currently selling for $25.00 per share. The firm's dividend yield is 10%.

A. If the firm distributes 40% of its earnings, what are its earnings?

B. What is the firm's P/E ratio?

2. The Gold Mining Corporation is seeking to raise $10,000,000 through a rights offering. The company presently has 1,000,000 shares of common stock outstanding at a current market price of $25.00 per share.

A. How many new shares must be sold via the rights offering if the subscription price of the new stock is $20 per share?

B. How many new shares could a stockholder owing 100 shares purchase?

C. What is the value of one right?

D. What will the approximate price of the stock ex-rights?

Solution Preview

1.Stock in Rich Corporation is currently selling for $25.00 per share. The firm's dividend yield is 10%.

A. If the firm distributes 40% of its earnings, what are its earnings?
Dividend Yield = 10%
Price = $25.00
Dividend Paid = $25*10%=$2.50
EPS=DPS/(1-retention ratio)=2.50/40%=$6.25

B. What is the firm's P/E ratio?
P/E=25/6.25=4.00

2. The Gold Mining Corporation ...

Solution Summary

This solution shows step-by-step calculations to determine the dividend yield, P/E ratio, rights offerings, shares and approximate prices of stocks ex-rights.

$2.19