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    Dividend Policy: Drew Financial Associates, Winkie Baking, Wolverine Corporation, and Tulia Dairy

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    1. Drew Financial Associates currently pays a quarterly dividend of 50 cents per share. This quarter's dividend will be paid to stockholders of record on Friday, February 22, 2007. Drew has 200,000 common shares outstanding. The retained earnings account has a balance of $15 million before the dividend, and Drew holds $2.5 million in cash.
    a. What is the ex-dividend date for this quarter?
    b. Drew's stock traded for $22 per share the day prior to the ex-dividend date. What would you expect the stock price to open at on the ex-dividend date? Give some reasons why this might not occur.
    c. What is the effect of the dividend payment on Drew's cash, retained earnings, and total assets?

    2.Winkie Baking has just announced a 100 percent stock dividend. The annual cash dividend per share was $2.40 before the stock dividend. Winkie intends to pay $1.40 per share on each of the new shares. Compute the percentage increase in the cash dividend rate that will accompany the stock dividend.

    3.Wolverine Corporation plans to pay a $3 dividend per share on each of its 300,000 shares next year. Wolverine anticipates earnings of $6.25 per share over the year. If the company has a capital budget requiring an investment of $4 million over the year and it desires to maintain its present debt to total assets (debt ratio) of 0.40, how much external equity must it raise? Assume that Wolverine's capital structure includes only common equity and debt, and that debt and equity will be the only sources of funds to finance capital projects over the year.

    4. Tulia Dairy pays a $2.50 cash dividend and earns $5 per share. Th e cash dividend has recently been increased to $2.65 per share, and a 3 percent stock dividend has been declared. What is the effective rate of increase in the dividends for Tulia as a result of this action?

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    Solution Summary

    Dividend policy for Drew Financial Associates is determined

    $2.19