01(c) Assume that IWT has a $115 million capital budget planned for the coming year. You have determined its present capital structure (70% equity and 30% debt) is optimal, and its net income is forecasted at $160 million. Use the residual distribution model approach to determine IWT's total dollar distribution. Assume for now that the distribution is in the form of a dividend. IWT has 200 million shares. What is the forecasted dividend payout ratio? What is the forecasted dividend per share? Net Income Target equity ratio Total capital budget Number of shares Distribution Capital budget Net income $160,00 70% $115,00 200 Net Income Target equity ratio) (Total capital budget Required equity (Equity ratio X Capital budget) Distributions paid (NI-Required equity) Payout ratio (Dividend/N) 115.00 70.00 What would happen to the payout ratio and DPS if net income were forecasted to decrease to $100 million? Dividend per share 01(d) Net Income Capital budget $100,00 115,00 70,00 " Net income Required equity (Equity ratio X Capital budget) Distributions paid (NI-Required equity) Payout ratio (Dividend/N) Dividend per share 6) 01 (0) What would happen to the payout ratio and DPS if net income were forecasted to increase to $200 mill Mini Ce Inputs Calculations Final Answer Blank 16 11.(e) 02ja) 02(b) 9 BI 32 What would happen to the payout ratio and DPS if net income were forecasted to increase to $200 million? Net Income Capital budget $200,00 Required equity (Equity ratio X Capital budget) Distributions paid (NI- Required equity) Payout ratio (Dividend/NI) Dividend per share 115,00 What are stock repurchases? Discuss the advantages and disadvantages of a firm's repurchasing its own shares. Suppose IWT has decided to distribute $70 million, which it presently is holding in very liquid shorterm investments. IWT's value of operations is estimated to be about $2100 million. IWT has $350 million in debt (it has no preferred stock). As mentioned previously, IWT has 200 million shares of stock outstanding Assume that IWT ha t 2(b) Suppose IWT has decided to distribute $70 million, which it presently is holding in very liquid short-term investments. IWT's value of operations is estimated to be about $2100 million. IWT has $350 million in debt (it has no preferred stock). As mentioned previously, IWT has 200 million shares of stock outstanding. Assume that IWT has not yet made the distribution. What is IWT's intrinsic value of equity? What is its intrinsic per share stock price? Inputs Value of operations Short-term investments Debt Number of shares $2 100,00 $70,00 $350,00 200,00 Value of operations +Value of nonoperating assets Total intrinsic value of firm Prior to Distribution $2 100,00 Debt 350,00 Intrinsic value of equity +Number of shares Intrinsic price per share Now suppose that IWT has just made the $70 million distribution in the form of dividends. What is IWT's intrinsic value of equity? What is its intrinsic per share stock price? 2(b) Now suppose that IWT has just made the $70 million distribution in the form of dividends. What is IWT's intrinsic value of equity? What is its intrinsic per share stock price? Prior to Distribution If Distributed as Dividend +Value of nonoperating assets Value of operations Total intrinsic value of firm -Debt Intrinsic value of equity +Number of shares Intrinsic price per share $2 100,00 $70,00 $2 100,00 0,00 0,00 Dividend per share 48 1902(c) 20 21 22 23 124 125 126 127 125 129 130 131 132 133 e. (3.) Suppose instead that IWT has just made the $70 million distribution in the form of a stock repurchase. Now what is IWT's intrinsic value of equity? How many shares did IWT repurchase? How many shares remained outstanding after the repurchase? What is its intrinsic per share stock price after the repurchase? Value of operations Value of nonoperating assets Total intrinsic value of firm -Debt Intrinsic value of equity +Number of shares Intrinsic price per share Number of shares repurchased Prior to If Distributed Distribution as Repurchase $2 100,00 $70,00 $2 100,00 0,00 01.(c) Assume that IWT has a $115 million capital budget planned for the coming year. You have determined its present capital structure (70% equity and 30% debt) is optimal, and its net income is forecasted at $160 million. Use the residual distribution model approach to determine IWT's total dollar distribution. Assume for now that the distribution is in the form of a dividend. IWT has 200 million shares. What is the forecasted dividend payout ratio? What is the forecasted dividend per share? Net Income Target equity ratio Total capital budget Number of shares Distribution Capital budget Net income $160,00 70% $115,00 200 Net Income -[(Target equity ratio) (Total capital budget)] 115,00 160,00 80,50 79,50 50 51 52 01(d) Required equity (Equity ratio X Capital budget) Distributions paid (NI-Required equity) Payout ratio (Dividend/NI) Dividend per share What would happen to the payout ratio and DPS if net income were forecasted to decrease to $100 million? 53 54 Net Income 35 Capital budget 56 Net income 57 58 59 60 61 instal $100,00 Required equity (Equity ratio X Capital budget) Distributions paid (NI-Required equity) Payout ratio (Dividend/NI) Dividend per share 115,00 70,00 58 69 70 01.(e) What would happen to the payout ratio and DPS if net income were forecasted to increase to $200 million? Net Income $200,00 71 73 74 02(a) 75 76 77 Capital budget Required equity (Equity ratio X Capital budget) Distributions paid (NI- Required equity) Payout ratio (Dividend/NI) Dividend per share 115,00 What are stock repurchases? Discuss the advantages and disadvantages of a firm's repurchasing its own shares. 02(b) Suppose IWT has decided to distribute $70 million, which it presently is holding in very liquid short-term investments. IWT's value of operations is estimated to be about $2100 million. IWT has $350 million in debt (it has no preferred stock). As mentioned previously, IWT has 200 million shares of stock outstanding. Assume that IWT has not yet made the distribution. What is IWT's intrinsic value of equity? What is its intrinsic per share stock price? Inputs Value of operations Short-term investments Debt Number of shares $2 100,00 $70,00 $350,00 200,00 Prior to Distribution $2 100,00 4 95 96 197 98 99 100 101 102 Value of operations +Value of nonoperating assets Total intrinsic value of firm -Debt Intrinsic value of equity +Number of shares Intrinsic price per share 350.00 + 2(c) e. (3.) Suppose instead that IWT has just made the $70 million distribution in the form of a stock repurchase. Now what is IWT's intrinsic value of equity? How many shares did IWT repurchase? How many shares remained outstanding after the repurchase? What is its intrinsic per share stock price after the repurchase? Value of operations +Value of nonoperating assets Total intrinsic value of firm -Debt Intrinsic value of equity +Number of shares Intrinsic price per share Number of shares repurchased Prior to If Distributed Distribution as Repurchase $2 100,00 $70,00 $2 100,00 0,00 +