• MNO Corp. has a market capitalization of $12,500,000 and has 500,000 shares outstanding. MNO currently pays a $2 per-share dividend. Bob currently owns 100 shares of MNO. Answer the following questions. Assume fractional shares can be sold and purchased and no taxes.
  • What is the value of Bob?s investment after the dividend is paid (ie dividend plus share value)? Keep in mind the share price change after the dividend is paid.

• Bob would prefer to receive a $1 per-share dividend. Show how Bob could achieve an equivalent cash flow while still invested in MNO. Also show that Bob?s investment in MNO has the same value as in part (a).

• Bob would prefer to receive a $3 per-share dividend. If it is possible, show how Bob could achieve an equivalent cash flow while still invested in MNO. Also show that Bob?s investment in MNO has the same value as in part (a).

Name:___________________________________Section:__________________________ FIN 4610 Dividends Assignment (15 points) Due Friday, April 22 by 5:00 PM 1. XYZ Corp. has declared a $5.60 per-share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15%. Assume new IRS regulations require that taxes be withheld when the dividend is paid (this makes the problem easier, even though it is unrealistic). XYZ sells for $75 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be? 2. ABC Corp. currently has 260,000 shares of stock outstanding that sell for $78 per share. Assuming no market imperfections or tax effects exist, what will the share price be after: a. ABC has a five-for-three stock split? b. ABC has a 15% stock dividend? c. ABC has a four-for-seven reverse stock split? Name:___________________________________Section:__________________________ 3. MNO Corp. has a market capitalization of $12,500,000 and has 500,000 shares outstanding. MNO currently pays a $2 per-share dividend. Bob currently owns 100 shares of MNO. Answer the following questions. Assume fractional shares can be sold and purchased and no taxes. a. What is the value of Bob's investment after the dividend is paid (ie dividend plus share value)? Keep in mind the share price change after the dividend is paid. b. Bob would prefer to receive a $1 per-share dividend. Show how Bob could achieve an equivalent cash flow while still invested in MNO. Also show that Bob's investment in MNO has the same value as in part (a). c. Bob would prefer to receive a $3 per-share dividend. If it is possible, show how Bob could achieve an equivalent cash flow while still invested in MNO. Also show that Bob's investment in MNO has the same value as in part (a)