1. Kevin currently owns

800

shares of Cylon, Inc. Cylon has a low-dividend-payout policy and this year will pay a

$0.25

cash dividend on its shares, which are selling currently at

$20.00.

Kevin wants a high-dividend-payout policy of

5.5%

of the stock price. What will Kevin need to do to convert this low-dividend-payout policy to a high-dividend-payout policy for himself? Assume a world of no taxes and transaction costs.

2.

If a company declares a 3-for-2 stock split, the price before the split is $90, and the price after the split is $60, show that a current shareholder is no better off after the split.

Current shareholders are no better off after the 3-for-2 split because if they owned two shares at $90 per share before the split, they would then own

2/3, 3, 2, 5

shares worth $60 each immediately after the split.

3. Southwest Tires declares a 7-for-5 stock split. The current price is $70 per share, and you own 600 shares. What is the expected share price after the split? What is your wealth before the split? After?

4.

Southern Railroad has announced a $5,600,000 stock repurchase plan over the next month. The current price of Southern Railroad stock is $22.53 per share, and 14,000,000 shares are outstanding. How many shares is Southern expecting to buy? What is the cash dividend that the company could pay with the repurchase money? If you were a shareholder with 800 shares, how many shares would you need to sell back to get cash equivalent to this dividend?

5.

Eastern Railroad has a dividend reinvestment plan for shareholders. From 2010 to 2014, the company had the year-end share prices and the end-of-year annual dividends in the popup window: If you started with 100 shares of stock at $46.00 per share and participated fully in the DRIP, how many shares of stock would you have at the end of 2014? What would the total value of your shares be?