CHAPTER 13 1 A fim has had the indicated earnings per share over the last three years: (b) What is Tangshan Mining's current P/E ratio? (c) Tangshan Mining wants to use half of its eamings either to pay shareholders dividends or to repurchase shares for inclusion in the firm's employee stock ownership plan. If the fim pays a cash dividend, what will be the dividend per share received by existing shareholders? (d) Instead of paying the cash dividend, what if the fimm uses half of its earnings to pay $55 per share to repurchase the shares, what will be the firm's new EPS? What should be the firm's new share price? (e) Compare the impact of a stock dividend and stock repurchase on shareholder wealth $3.00 Year EPS 2003 2002 2.00 2001 1.00 (a) If the firm's dividend policy was based on a constant payout ratio of 50 percent, determine the annual dividend for each year. (6) If the firm's dividend policy was based on a fixed dollar payout policy of 50 cents per share plus an extra dividend equal to 75 percent of earnings per share above $1.00, determine the annual dividend for each year. 2 Caswell-Cassey Pharmaceutical has a stockholders' equity account as shown below. The firm's common stock currently sells for $20 per share. Preferred stock $500,000 Common stock (2,000,000 shares @ $1 par) 2,000,000 Paid-in-capital in excess of par 10,000,000 Retained earnings 11,600,000 Total stockholders' equity $24,100,000 (a) What is the maximum dividend per share Caswell-Casey can pay? (Assume capital includes all paid-in capital.) (6) Recast the partial balance sheet (the stockholders' equity accounts) to show independently (1) a 2 for 1 stock split of the common stock. (2) a cash dividend of $1.50 per share. (3) a stock dividend of 5 percent on the common stock. (c) At what price would you expect the Caswell-Cassey stock to sell after (1) the stock split? (2) the stock dividend? 3. Tangshan Mining Company has released the following information. Earnings available to common stockholders $5,000,000 Number of shares of common stockoutstanding 1,000,000 Market price per share $50 Retained earings 11,600,000 (a) What are Tangshan Mining's current eamings per share