Net profit of Harper Holding Ltd in the current year is $3,546,000. The company is planning to launch a project that will requires an investment of $1,045,000 next year. Today the company's stock has market value of $72/share. Harper Holding Ltd has the current capital structure of 65% in equity and 35% in debt.

Required:

a. How much dividend can Harper Holding Ltd pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies. (3 marks)

b. The company is paying a cash dividend of $5.50/share plus an extra-cash dividend of $2.5/share. Tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%? (1 marks)

c. M&T Ltd. is a daughter company of the Harper Holding and currently under a liquidation plan due to severe business contraction. The company plans to pay total dividend of $8.5 million now and $ 12.5 million one year from now as a liquidating dividend. The required rate of return for shareholders is 12%. Calculate the current value of the firm's equity in total and per share if the firm has 1.5 million shares outstanding? (3 marks)

Q2

Aaron's Rentals has 58 000 ordinary shares outstanding at a market price of $36 a share. The shares have just paid a $2.64 annual dividend and have a dividend growth rate of 5.0%. There are 12 000 preference shares with a 6% preference, outstanding at a market price of $51 a share. The preference shares have a par value of $100. The 750 outstanding bonds mature in 17 years. They have a face value per bond of $1000 and a market price of $1011 each. The bonds pay 8% coupon interest, semi-annually. The tax rate is 30%. What is the firm's weighted average cost of capital assuming a classical tax rate?