Natsam Corp

776 Words Nov 18th, 2014 4 Pages
Laurie Lucchesi
FIN516-FREY
Assignment #1
10/31/2014
Problem 17-7 on Ex-dividend Price based on Chapter 17 Payout Policy
Natsam Corporation has $250 million of excess cash. The firm has no debt and 500 million shares outstanding with a current market price of $15 per share. Natsam’s board has decided to payout this cash as a one-time dividend. a. What is the ex-dividend price of a share in a perfect capital market?
$250 mil/ $500 mil = $0.50 = dividend payoff per share
$15 - $0.50 = $14.50 which would be the ex-dividend price of a share in a perfect capital market. b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market, what is the price of the shares once the
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What would happen to Arbuckle’s stock price upon the announcement of this change?
$30 current trading price + $2 tax savings = $32 new stock price

Problem 17-19 on Dividend Capture Strategy based on Chapter 17 Payout Policy
Que Corporation pays a regular dividend of $1 per share. Typically, the stock price drops by $0.80 per share when the stock goes ex-dividend. Suppose the capital gains tax rate is 20%, but investors pay different tax rates on dividends.

Absent transactions costs, what is the highest dividend tax rate of an investor who could gain from trading to capture the dividend?
$0.80/$1 = 80% = percent stock price would drop t*d = (td – tg)/(1-tg); t*d(1-tg)=td-tg; td=tg + t*(1-tg) td = 0.20 + 0.20(1-0.20) td = 0.20 + 0.20(0.80) td = 0.20 + 0.16
= 0.36 or 36% The highest dividend tax rate of an investor who could gain from trading to capture the dividend would be 36%.

Problem 23-5 on Preferred Stock based on Chapter 23 Raising Equity Capital

Three years ago, you founded your own company. You invested $100,000 of your money and received 5 million shares of Series A preferred stock. Since then, your company has been through three additional rounds of financing.

Round | Price ($) | Number of Shares | Series B | 0.50 | 1,000,000 | Series C | 2.00 | 500,000 | Series D | 4.00 | 500,000 |

a. What is the pre–money valuation for the Series D funding round?

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