Question 6(7 marks)

Upon consideration that coming economic situation is no longer favourable for tourism sector, World Travelling Ltd ispreapring a liquidation plan for its international branches to preserve the shareholder values. Under the liquidation plan, the company will pay total dividend of $7 million now and $ 10 million one year from now as a liquidating dividend. A cash dividen of $3.5 was announced for this financial year.

a)Tomorrow is ex-dividend day, current market price today is $15/share. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 10%?(2 marks)

ANSWER:

b)Calculate the current value of the firm's equity in total and per share if the firm has 2 million shares outstanding and the rate of return for shareholders is 10.5%? (3 marks)

ANSWER:

c)Blue Ocean ResortLtd, one domestic subsidy of this corporation still maintain a good performance and has a net profit for current year of$3,540,000. The company is planning to launch a project that will requires an investment of $ 1.745,000 next year.How much dividendBlue Ocean Resortcan pay its shareholders this year and what is dividend payout ratio of the company given the capital structure of 45% equity funding and 55% debt funding.Assumethe Residual Dividend Payout Policy applies? (2 marks)

ANSWER: