1) Espresso Roasters Inc only pays dividends to its shareholders The current share price is $20, the company has 150 million shares outstanding, $300 million in outstanding debt, and $150 million in excess cash Assume that the company will use all of its excess cash to pay its shareholders a dividend For simplicity, also assume that the ex date is tomorrow and that the dividend will be paid on the ex date Assume that market are not perfect, and that the only market imperfection are taxes If the tax rate on dividends is 15 and the tax rate on capital gains is 20 , what will happen to the share price on the ex date Select the best one I The share price will decline to $18 54 II Nothing, the share price will remain at $20 III The share price will decline to $19 5 IV The share price will decline to $19 V The share price will decline to $18 94 2) You are trying to value the stock of Cowbell Inc You know that the firm only uses dividends to return cash to its investors and you have forecasted the dividends for the 4 years (see table below) You believe that dividends will grow at a constant rate of 1 each year after year 4 The cost of equity is 12 Given this information estimate the share price for Cowbell Inc Round your answer to two decimals (do not enter the $ symbol in your answer)

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Posted on Sep 09, 2024

1). Espresso Roasters Inc. only pays dividends to its shareholders. The current share price is $20, the company has 150 million shares outstanding, $300 million

1). Espresso Roasters Inc. only pays dividends to its shareholders. The current share price is $20, the company has 150 million shares outstanding, $300 million in outstanding debt, and $150 million in excess cash. Assume that the company will use all of its excess cash to pay its shareholders a dividend. For simplicity, also assume that the ex-date is tomorrow and that the dividend will be paid on the ex-date. Assume that market are not perfect, and that the only market imperfection are taxes. If the tax rate on dividends is 15% and the tax rate on capital gains is 20%, what will happen to the share price on the ex-date? Select the best one.

	I.	The share price will decline to $18.54.
	II.	Nothing, the share price will remain at $20.
	III.	The share price will decline to $19.5.
	IV.	The share price will decline to $19.
	V.	The share price will decline to $18.94.

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You are trying to value the stock of Cowbell Inc. You know that the firm only uses dividends to return cash to its investors and you have forecasted the dividends for the 4 years (see table below). You believe that dividends will grow at a constant rate of 1% each year after year 4 . The cost of equity is 12%. Given this information estimate the share price for Cowbell Inc. Round your answer to two decimals (do not enter the \$-symbol in your answer)