Dividends and Taxes

In the open market share repurchase, the firm may or may not declare the repurchase. Depending on the market condition and the firm’s position in the industry, the firm can decide when and how many

3. The market value of SciTronics’ equity was $175,000,000 at December 31, 2008. The total debt ratio at market was 32%.

The repurchase program increases the shareholder’s value. This is because of a rise in the price of the shares of the original shareholders.

b) What will be the total equity value and equity price per share after the issuance is completed?

-Martin Industries just paid an annual dividend of $1.30 a share. The market price of the stock is $36.80 and the growth rate is 6.0 percent. What is the firm's cost of equity?

Since firms incur the re-purchase option by offering $20 cash for each stock bought back, the number of outstanding shares will be reduced. The Earnings per share will increase leading to an increased stock price.

Cost of sales was equivalent 78% of total revenues. The company repurchased 44 million shares for $1.57 billion.

$10,644,800 / $2,271,400 = 4.69 Times Return on Common Stockholders’ Equity (2002) $647,645 / $1,928,960 = 33.58% Return

Another factor for management to consider would involve the clientele effects. Presently the Wrigley family controls 21% of common shares and 58% of Class B common stock. Assuming the Wrigley family do not sell any shares, the repurchase will raising their voting control from 46.6% to a majority control over voting rights at 50.6% (see appendix2.2). This isn’t deemed significant as the Wrigley family already previously possessed majority of voting rights

Common Share Value: Total market value of common share = price per share * number of pref. share = $25 * 100000 = $2,500,000

Because firm value will rise to $6,850.8 million immediately after the recapitalization announcement, original shareholders will capture the full benefit of interest tax shield since they are able to sell their stocks at a higher price. The new stock price is determined by dividing the value of the levered firm by the number of shares outstanding at the end of 1998. Since there were 185, 516,055 shares outstanding at year end 1998, the new stock price after the announcement of recapitalization would be $6,850.8 million divided by 185, 516,055, which is $36.93. Compared to the

The large share repurchase should be recommended to Blaine’s board. The followings are advantages of share repurchase.

If management is conducting the repurchase due to their belief that the stock is undervalued and this belief is correct, the market cap should eventually rise to their estimation. This market cap rise would combine with the new lower number of shares outstanding, resulting in an even higher stock price.

(10 points) Mango, Inc. has had debt with market value of $1 million that has paid a 6% coupon and has had an expiration date that is far, far away. The expected annual earnings before interest and taxes for the firm are $2 million and the firm has not grown, nor does it have plans for any growth. The firm however has just raised more equity to retire all its debt. If the required rate of return to equity-holders (after the capital structure change) is now 20%, what is the market value of the firm? Assume there are no taxes. (Enter just the number without the $ sign or a comma; round to the nearest whole dollar.)

Storico Co. just paid a dividend of aud 3.5 per share. The company will increase its dividend by 20% next year, and will then reduce its dividend growth rate by 5% per year, until it reaches the industry average of 5% industry average growth, after which the company will keep a constant growth rate forever. If the required return on Storico stock is 13%, what will a share of stock sell for today?