Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

*** Could you please check my answers and adjust and explain if possible? please. I don't understand what else to write. I feel my knowledge

*** Could you please check my answers and adjust and explain if possible? please. I don't understand what else to write. I feel my knowledge to explain is not enough especially for (F).***

Question:You own one share in a company called Invest Co. Inc. Examining the balance sheet, you have determined that the firm has $100,000 cash, equipment worth $900,000, and 100,000 shares outstanding.

Calculate the price/value of each share in the firm, and explain how your wealth is affected if:

A. The firm pays out dividends of $1 per share.

Each shares price goes down by $1. The shareholders have the ability to purchase back more shares with the dividends they received.

My share is worth $1 less, but I have gained $1 extra. I am also taxed on my dividend received.

B. The firm buys back 10,000 shares for $10 cash each, and you choose to sell your share back to the company.

I sell my share for $10. I make $10.

C. The firm buys back 10,000 shares for $10 cash each, and you choose not to sell your share back to the company.

I keep my share, the companies value will go up. My wealth stays the same. Unrealized gain/loss.

D. The firm declares a 2-for-1 stock split.

My share is now turned into 2 shares. If my original share was $10, after the 2-to-1 stock split, I will have 2 shares each worth at $5. So my wealth is still $10.

E. The firm declares a 10% stock dividend.

My share will go down by 10%, but I will receive that 10%.

F. The firm buys new equipment for $100,000, which will be used to earn a return equal to the firm's discount rate.

My stock price will drop but the value of the equity and assets will go up.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Foundations Of Finance

Authors: Arthur J. Keown, John H. Martin, J. William Petty

10th Edition

0135160618, 978-0135160619

More Books

Students also viewed these Finance questions

Question

What does stickiest refer to in regard to social media

Answered: 1 week ago

Question

What events typically must occur for a liability to be recognized?

Answered: 1 week ago