Nova Scotia Spirit has a debt/equity ratio of 1.5 which they want to maintain. They expect...

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Nova Scotia Spirit has a debt/equity ratio of 1.5 which they want to maintain. They expect earnings to be $500,000 this year. Planned capital expenditures this year are $1,400,000. Nova Scotia Spirit has 50,000 shares outstanding with a current market value of $30 per share. We also know that Nova Scotia Spirit has a 60% retention ratio. a) What are the dividends per share? (3 marks) b) Calculate total external debt financing, and total external equity financing required for this year? (4 marks) c) If Nova Scotia Spirit pays no dividends (100% retention ratio), and still wants to maintain a D/E ratio as before, what is the maximum amount of capital expenditures they could do without issuing any new equity? (3 marks) d) Calculate the share price and the number of shares outstanding if Nova Scotia Spirit declares a 3 for 1 split (before any planned capital expenditures). (3 marks) e) Instead of paying a cash dividend or having a stock split, Nova Scotia Spirit decides to distribute a 20% stock dividend to all existing shareholders. Please calculate the new share price after the stock dividend. (3 marks) Nova Scotia Spirit has a debt/equity ratio of 1.5 which they want to maintain. They expect earnings to be $500,000 this year. Planned capital expenditures this year are $1,400,000. Nova Scotia Spirit has 50,000 shares outstanding with a current market value of $30 per share. We also know that Nova Scotia Spirit has a 60% retention ratio. a) What are the dividends per share? (3 marks) b) Calculate total external debt financing, and total external equity financing required for this year? (4 marks) c) If Nova Scotia Spirit pays no dividends (100% retention ratio), and still wants to maintain a D/E ratio as before, what is the maximum amount of capital expenditures they could do without issuing any new equity? (3 marks) d) Calculate the share price and the number of shares outstanding if Nova Scotia Spirit declares a 3 for 1 split (before any planned capital expenditures). (3 marks) e) Instead of paying a cash dividend or having a stock split, Nova Scotia Spirit decides to distribute a 20% stock dividend to all existing shareholders. Please calculate the new share price after the stock dividend. (3 marks)

Answer rating: 100% (QA)

a The dividend payout ratio is 1 retention ratio which equals 40 in this case since the retention ratio is 60 The total amount of earnings that will be paid out as dividends is Dividends Earnings Divi... View the full answer