Chapter 19 In-Class Problems - Dividends and Other Payouts

1.Calculate the Dividends available to pay to stockholders given the following information:

Capital budget:$85 million.

Target capital structure:No preferred stock; D/E = .55

Forecasted net income:$100 million.

Dividend Distribution =Net Income - (Target Equity Ratio)(Total Capital Budget)

= Net Income - Required Equity

Hint:You need to convert D/E to D/A and E/A.

2.Complete the table below.

Value of Operations = $200,000

Short Term Investments = $750

Debt = $250

Number of shares 10,000

Short-term Investments liquidated to pay$.075/share dividend.

Before Cash Div.

After Cash Div.

V_op

$

$

+ short-term investments

0.00**

V_Total

$

$

- Debt

Value of Equity (S)

$

$

Divide by n (shares)

Price per share

$

$

3.Complete the table below.The short-term investments will be used to repurchase shares.

Value of Operations = $200,000

Short Term Investments = $750

Debt = $250

Number of shares 10,000

Short-term Investments liquidated to repurchase shares at $20.05/share.

Before Share Repurchase

After Share Repurchase

V_op

$

$

+ short-term investments

0.00**

V_Total

$

$

- Debt

Value of Equity (S)

$

$

Divide by n (shares)

Price per share

$

$

4.A company has 10,000,000 shares outstanding.The company declares a 5% stock dividend.

a.How many additional shares will be outstanding when the stock dividend is paid?

b.How many total shares will be outstanding?

5.Complete the following table for a company that declares a 3:1 stock split. The outstanding shares are 10,000,000 with a current market price of $90.

Before Split

Adjustment

After Split

Common Stock Shares

X

Par Value per Share

$

/

$

Total Par Value

$

------

$

6.Complete the following table for a company that declares a 4:1 stock split.The outstanding shares are 10,000,000 with a current market price of $100.

Before Split

Adjustment

After Split

Common Stock Shares

X

Par Value per Share

$

/

$

Total Par Value

$

------

$