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net income

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Question

26)The Hastings Sugar Corporation has the following pattern of net income each year, and associated capital

expenditure projects. The firm can earn a higher return on the projects than the stockholders could earn if the funds were paid out in the form of dividends.

YearNet IncomeProfitable Capital
Expenditure
1 $13 million  $  7 million 
2 24 million   11 million 
3 17 million  6 million 
4 18 million  8 million 
5 22 million  8 million 
The Hastings Corporation has 2 million shares outstanding (The following questions are separate from each other).
a.If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years? (Enter your answer in millions.)
  Total cash dividends$ million  
b.If the firm simply uses a payout ratio of 50 percent of net income, how much in total cash dividends will be paid? (Enter your answer in millions and round your answer to 1 decimal place.)
  Total cash dividends$ million  
c.If the firm pays a 10 percent stock dividend in years 2 through 5, and also pays a cash dividend of $3.40 per share for each of the five years, how much in total dividends will be paid?
  Total cash dividends$  
d.Assume the payout ratio in each year is to be 20 percent of net income and the firm will pay a 10 percent stock dividend in years 2 through 5. How much will dividends per share for each year be? (Assume cash dividend is paid after the stock dividend). (Round your answers to 2 decimal places.)
YearDividends
per Share
1$  
2$  
3$  
4$  
5$  
 
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shares

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Question

25)The Carlton Corporation has $5 million in earnings after taxes and 2 million shares outstanding. The

stock trades at a P/E of 10. The firm has $5 million in excess cash.

a.  Compute the current price of the stock. (Do not round intermediate calculations and round your answer to 2 decimal places.)
  Current price$  
b.  If the $5 million is used to pay dividends, how much will dividends per share be? (Do not round intermediate calculations and round your answer to 2 decimal places.)
  Dividends per share$  
c.  If the $5 million is used to repurchase shares in the market at a price of $30 per share, how many shares will be acquired? (Do not round intermediate calculations and round your answer to the nearest whole share.)
  Number of shares acquired shares  
d.  What will the new earnings per share be? (Use the rounded number of shares computed in part c but do not round any other intermediate calculations. Round your answer to 2 decimal places.)
  Earnings per share$  
e-1.If the P/E ratio remains constant, what will the price of the securities be? (Use the rounded answer from part d and round your answer to the nearest whole dollar.)
  Stock price$  
e-2.
 		By how much, in terms of dollars, did the repurchase increase the stock price? (Use the rounded whole dollar answer from part e-1. A negative value should be indicated with a minus sign. Round your answer to the nearest whole dollar.)
  Stock price increase / decrease$  
f.  Has the stockholders’ total wealth changed as a result of the stock repurchase as opposed to receiving the cash dividend?
  
 Yes
 
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dividend

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Question

22)Ace Products sells marked playing cards to blackjack dealers. It has not paid a dividend in many years,

but is currently contemplating some kind of dividend.

The capital accounts for the firm are as follows:
   
  Common stock (2,900,000 shares at $5 par)$14,500,000  
  Capital in excess of par* 6,000,000  
  Retained earnings 24,500,000  
 
       Net worth$45,000,000  
 
*The increase in capital in excess of par as a result of a stock dividend is equal to the new shares created times (Market price − Par value).
The company’s stock is selling for $50 per share. The company had total earnings of $14,500,000 during the year. With 2,900,000 shares outstanding, earnings per share were $5. The firm has a P/E ratio of 10.
a.What adjustments would have to be made to the capital accounts for a 10 percent stock dividend? Show the new capital accounts. (Do not round intermediate calculations. Input your answers in dollars, not millions (e.g. $1,230,000).)
  
  Common stock$  
  Capital in excess of par 
  Retained earnings 
 
       Net worth$  
 
b.What adjustments would be made to EPS and the stock price? (Assume the P/E ratio remains constant.) (Do not round intermediate calculations and round your answers to 2 decimal places.)
  
  EPS$  
  Stock price$  
c.How many shares would an investor end up with if he or she originally had 130 shares? (Do not round intermediate calculations and round your answer to the nearest whole share.)
  Number of shares 
d.What is the investor’s total investment worth before and after the stock dividend if the P/E ratio remains constant? (Do not round intermediate calculations and round your answers to the nearest whole dollar.)
 Total Investment
  Before stock dividend$   
  After stock dividend$   
 
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Wilson Pharmaceuticals’ stock

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Question

21)Wilson Pharmaceuticals’ stock has done very well in the market during the last three years. It has

risen from $75 to $100 per share. The firm’s current statement of stockholders’ equity is as follows:

   
  Common stock (5 million shares issued
    at par value of $10 per share)		$50,000,000  
  Paid-in capital in excess of par 11,000,000  
  Retained earnings 44,000,000  
 
       Net worth$105,000,000  
 
a-1.How many shares would be outstanding after a two-for-one stock split? (Do not round intermediate calculations. Input your answer in millions (e.g., $1.23 million should be entered as “1.23”).)
  Number of shares million
a-2.What would be its par value? (Do not round intermediate calculations and round your answer to 2 decimal places.)
  Par value$  
b-1.How many shares would be outstanding after a three-for-one stock split? (Do not round intermediate calculations. Input your answer in millions (e.g., $1.23 million should be entered as “1.23”).)
  Number of shares million
b-2What would be its par value? (Do not round intermediate calculations and round your answer to 2 decimal places.)
  Par value$  
c.Assume that Wilson earned $15 million. What would its earnings per share be before and after the two-for-one stock split? After the three-for-one stock split? (Do not round intermediate calculations and round your answers to 2 decimal places.)
  
  EPS before$  
  EPS after 2-for-1 split$  
  EPS after 3-for-1 split$  
d.What would be the price per share after the two-for-one stock split? After the three-for-one stock split? (Assume that the price-earnings ratio of 33.33 stays the same.) (Do not round intermediate calculations and round your answers to 2 decimal places.)
  
  Price after 2-for-1 split$  
 
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