Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Here are key financial data for House of Herring, Inc.: Earnings per share for 2025 $6.35 Number of shares outstanding 41.7 million Target payout ratio

Here are key financial data for House of Herring, Inc.:

Earnings per share for 2025 $6.35
Number of shares outstanding 41.7 million
Target payout ratio 40 %
Planned dividend per share $2.54
Stock price, year-end 2025 $ 200

House of Herring plans to pay the entire dividend early in January 2026. All corporate and personal taxes were repealed in 2024.

a. Other things equal, what will be House of Herrings stock price after the planned dividend payout? (Round your answer to 2 decimal places.)

b-1. Suppose the company cancels the dividend and announces that it will use the money saved to repurchase shares. Will the stock price change due to the announcement?

b-2. Assume that investors learn nothing about the companys prospects from the announcement. How many shares will the company need to repurchase? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Suppose that, instead of canceling the dividend, the company increases dividends to $6.35 per share and then issues new shares to recoup the extra cash paid out as dividends. Again, assume investors learn nothing from the announcement about House of Herrings prospects.

c-1. What happens to the with-dividend share price?

c-2. What happens to the ex-dividend share price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c-3. How many shares will need to be issued? (Do not round intermediate calculations. Enter your answer in whole numbers not in millions. Round your answer to the nearest whole number.)

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_2

Step: 3

blur-text-image_3

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

Analytical Finance Volume I

Authors: Jan R. M. Röman

1st Edition

3319340263, 978-3319340265

More Books

Students also viewed these Finance questions

Question

Are antidepressants an effective treatment?

Answered: 1 week ago

Question

why we face Listening Challenges?

Answered: 1 week ago

Question

what is Listening in Context?

Answered: 1 week ago