ACME Corporation consists of 250 grocery stores throughout the Midwest. At the beginning of 2008 its statement of net worth showed the following information: Common Stock ($1 par) $400,000; Capital paid in excess of par $1,400,000 and retained earnings $500,000. During the year, net income equaled $160,000. Management was undecided on what to do with the income. Acme paid an annual dividend of $.35 per share last year and the stock price is currently $14.50. Acme has a 6% growth rate in earnings and dividends, and is in the 40% tax bracket.
a) What return on investment would Acme have to earn in order to justify retaining 2010's earnings? Use the formula: Ke= D1/P0 + g
b) What changes would occur in stockholder's equity if a $.25 cash dividend was paid? If a 5% stock dividend was given and no cash dividend was paid?
c) What would EPS be before and after the stock dividend?© BrainMass Inc. brainmass.com October 17, 2018, 11:15 am ad1c9bdddf
K_e= D_1/P_0 + g
= D_0*(1+g)/P_0 + g
Cash dividend only affects retained earnings,
Beginning R/E: 500,000
Net Income : 160,000
Cash Dividend: -100,000 (=0.25*400,000 shares)
Ending R/E: 560,000
Common stock: ...
Corporate financial management is examined. The return on investments for Acme to justify retaining earnings are determined.
The Acme Company is exploring many strategic options. The firm inevitably will require the services of a bank to help manage its working capital. Many major multinational banks provide a variety of working capital and multinational cash management services.
The Acme Company is exploring many strategic options. Whichever global business strategy the Acme Company eventually chooses, the firm inevitably will require the services of a bank to help manage its working capital. Many major multinational banks provide a variety of working capital and multinational cash management services.
Here is a list of Acme's assumptions:
It will have subsidiaries in South America and Asia that import materials and parts and assemble for export.
It wants to centralize cash management.
It needs local lending sources for operating cash.
It needs short-term investment vehicles for excess cash balances.
It needs foreign exchange and forward market services.
It will have bills to pay in both local and other currencies.
Using the websites of a variety of these cross-border banks (starting with the
banks listed below), search out the international banks that offer multinational cash management services that combine banking with foreign exchange management.
Select one bank and describe how the services it offers will take care of Acme's international working capital management requirements. Be sure to demonstrate why you believe your choice is the best alternative among the banks you investigated (i.e., compare and contrast).
Bank of America