Question 4 - Total 15 marks

a) Billingsley United declared a $0.20 a share dividend on Thursday, October 16. The dividend will be paid on Monday, November 10 to shareholders of record on Friday, October 31. What is the exdividend date? ( 1 mark)

b) "Leverage is a fair-weather friend". In light of this, indicate when a company should or should not use financial leverage. (1 mark)

c) Briefly answer the following questions:

i) What is capital restructuring? (1 mark)

ii) The signalling theory assumes the existence of asymmetric information. Discuss this statement. (2 marks)

iii) How is a merger different from consolidation? (2 marks) Total 5 marks

d) Obama Inc and Osama Inc are competitors with very similar assets and business risks. Both are all equity firms with aftertax cash flows of $12 per year forever. Both have an overall cost of capital of 8%. Obama Inc is thinking of buying Osama Inc . The aftertax cash flow from the merged firm would be $25 per year. Does the merger create synergy? What is value of the Obama Inc. after the merger ? What is V? What is the total value of Osama Inc. to Obama Inc? (5 marks)

e) John Jet has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase? (3 marks)