Question-2: [1+1+2+2+2+2+3+2+5=20]

Al-Haj Textile Mills belongs to a risky class of business for which the appropriate discount rate is 10 percent. The company currently has 140,000 outstanding shares selling at 125 Taka each. The firm is contemplating the declaration of a 5-taka dividend at the end of the fiscal year that just began. Answer the following questions based on the Miller and Modigliani model, as discussed in class.

a) What will be the price of the stock on the ex-dividend date if the dividend is declared?

b) What will be the price of the stock at the end of the year if the dividend is not declared?

c) If Al-Haj Textile Mills makes 3.25 million Taka of new investments at the beginning of the period, earns net income of 1.1 million, and pays the dividend at the end of the year, how many shares of new stock must the firm issue to meet its funding needs?

d) If the company decides instead to issue a 1-for-1 stock split and a 5-taka dividend with it what would be the adjusted stock price?

e) If the company does a 1-for-4 Reverse stock split and then issues a 5-taka dividend then what would be the adjusted stock price?

f) If the company issues a 5% stock dividend and a 5-taka cash dividend then what would be the adjusted price?

g) State THREE reasons why a company might want to consider Stock Repurchase?

h) Describe the TWO Methods by which a company can perform Stock Repurchases?

i) Now a brand new company called Exxon Capital is planning $700 million for investing in positive NPV projects. The target structure of the company is currently 70 percent debt and 30 percent equity. Given that the company is following a reasonable liberal dividend policy what would be the companys next dividend payout provided that they are expecting $400 million in net earnings for the current fiscal year?