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FIN360 Capital Investment and Financing homework

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FIN360

HW 5 (Chapter 17)

Student Name:

 

 

  1. Dynasty Inc., has declared a $4.80 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Dynasty sells for $68.20 per share, and the stock is about to go ex-dividend. What do you think the ex-dividend price will be?

 

 

 

  1. Red Rocks Corporation (RRC) currently has 490,000 shares of stock outstanding that sell for $73 per share. Assuming no market imperfections or tax effects exist, what will the share price be after:
  2. RRC has a five-for-three stock split?
  3. RRC has a four-for-seven reverse stock split?

 

 

 

  1. The balance sheet for Broncos Corp. is shown here in market value terms. There are 12,000 shares of stock outstanding.

 

                              Market Value Balance Sheet  
Cash  $    52,900   Equity  $    387,900
Fixed assets      335,000      
Total  $ 387,900   Total  $    387,900
         

 

The company has declared a dividend of $1.30 per share. The stock goes ex dividend tomorrow. Ignoring any tax effects, what is the stock selling for today? What will it sell for tomorrow? What will the balance sheet look like after the dividends are paid?

 

 

 

 

 

 

 

 

 

  1. HHM Corporation is evaluating an extra dividend versus a share repurchase. In either case, $14,500 would be spent. Current earnings are $1.65 per share, and the stock currently sells for $58 per share. There are 2,000 shares outstanding. Ignore taxes and other imperfections in answering the first two questions.

 

  1. Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth.
  2. What will be the effect on HHM’s EPS and PE ratio under the two different scenarios?
  3. In the real world, which of these actions would you recommend? Why?

 

 

 

 

 

 
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