Book: Corporate Finance Corporate Principles & Applications 5th Edition. ISBN: 978-1-259-28990-3
Unit 5 Assignment 1: To enhance your understanding of financial concepts, complete the following problems in your Corporate Finance textbook.
- Chapter 16, problem 1 (page 509).
- Chapter 16, problem 4, a through d (page 509).
- Chapter 16, problem 7 (page 510)
- Chapter 16, problem 16a (page 511).
You are required to use the textbook problems template in the Resources to complete the problems. This Excel document contains unique details and cells specific to the problems that you must use to derive your solutions. Provide full detail of the process used to reach the solution.
*Please show input values used to compute answers*
Basic (Questions 1-10) Dividends and Taxes Ash, Inc., has declared a $7.25 per-share dividend. Suppose capital gains are not taxed, but dividends are taxed at 25 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. The company's stock sells for $79 per share and is about to go ex dividend. What do you think the ex-dividend price will be? 1. 4. Stock Splits and Stock Dividends Roll Corporation (RC) currently has 310,000 shares of stock outstanding that sell for $91 per share. Assuming no market imperfections or tax effects exist, what will the share price be after: a. RC has a five-for-three stock split? b. RC has a 15 percent stock dividend? c. RC has a 42.5 percent stock dividend? d. RC has a four-for-seven reverse stock split? Determine the new number of shares outstanding in parts (a) through (d). 7. Stock Dividends The market value balance sheet for Desktop Manufacturing is shown here. The company has declared a 25 percent stock dividend. The stock goes ex dividend tomorrow (the chronology for a stock dividend is similar to that for a cash dividend). There are 28,000 shares of stock outstanding. What will the ex-dividend price be? MARKET VALUE BALANCE SHEET Cash Fixed assets Total $127,000 603,000 Equity 625,000 $752000 $149,000 Debt $752.000 Total Dividend Smoothing The Sharpe Co. just paid a dividend of $2.65 per share of stock. Its target payout ratio is 50 percent. The company expects to have earnings per share of $6.30 one year from now. 16. If the adjustment rate is.3 as defined in the Lintner model, what is the dividend one year from now? a. 1 UNIT 5:TEXTBOOK PROBLEMS 4 CHAPTER 16: PROBLEM 1 6 Dividend 7 Dividend Tax B Stock Price $7.25 25% $79 #NAME? #NAME? 10 Step 1: Calculate the After-Tax Dividend 11 Step 2: Ex-Dividend Price 12 13 14 CHAPTER 16: PROBLEM 4 (a thru d) 15 16 # of shares of stock outstanding 17 Stock Price 18 19 A 20 21 B 310,000 $91 #NAME? #NAME? #NAME? #NAME? 1.15 23 C. 24 25 D 26 27 28 CHAPTER 16: PROBLEM 7 29 30 Stock Dividend 31 # of shares of stock outstanding 32 33 Marke 34 Cash 35 Fixed Assets 36 Total 37 38 Debt 39 Equity 40 Total 41 42 Find the market price of stock by using the equity and # of shares outstanding 43 New shares outstanding- 44 Ex-Dividend Stock Price 45 1.425 25% 28,000 alan $149,000 $603,000 $752,000 $127,000 $625,000 $752,000 #NAME? #NAME? # NAME ? Format 46 47 CHAPTER 16: PROBLEM 16a 48 49 Dividend 50 Payout Ratio 51 Eamings Per Share 52 Adjustment Rate 0 $2.65 50% $6.30 0.3 54 Dividend 1 year from now #NAME ? 57 59
