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    Dividend Yield & P/E Ratio & Rights Offerings

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    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?

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    https://brainmass.com/business/business-law/dividend-yield-p-e-ratio-rights-offerings-253038

    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

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