As the current CFO, you are responsible for presenting the dividend policy decisions to the Board of Directors at fiscal year end. You are preparing to present to the Board tomorrow at the annual meeting. You are considering increasing the historically stable dividend, knowing that will decrease future growth potential. Assuming the following information, use the dividend discount model to predict the share price under the new proposal. The required rate of return (RROR) for investors is assumed to be unchanged by the proposal. The rates given are annual and the dividends are paid once per year, just before the annual meeting. Current Dividend = $14 Current RROR = 17% Current Growth = 6% Proposal Dividend increase = $5 Growth decrease = 1.7% (absolute value) What is the dollar change in share price? Answer in the conventional $X.XX format and express negative numbers with a "-" after the units (e.g. $-21). Do NOT use commas in your answer. Selected Answer: [None Given] Correct Answer: ✔21.13 ($)

As the current CFO, you are responsible for presenting the dividend policy decisions to the Board of Directors at fiscal year end. You are preparing to present to the Board tomorrow at the annual meeting. You are considering increasing the historically stable dividend, knowing that will decrease future growth potential. Assuming the following information, use the dividend discount model to predict the share price under the new proposal. The required rate of return (RROR) for investors is assumed to be unchanged by the proposal. The rates given are annual and the dividends are paid once per year, just before the annual meeting. Current Dividend = $14 Current RROR = 17% Current Growth = 6% Proposal Dividend increase = $5 Growth decrease = 1.7% (absolute value) What is the dollar change in share price? Answer in the conventional $X.XX format and express negative numbers with a "-" after the units (e.g. $-21). Do NOT use commas in your answer. Selected Answer: [None Given] Correct Answer: ✔21.13 ($)

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

9th Edition

ISBN:9781305635937

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter14: Distributions To Shareholders:Dividends And Share Repurchases

Section: Chapter Questions

Problem 8P

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ALTERNATIVE DIVIDEND POLICIES Rubenstein Bros. Clothing is expecting to pay an annual dividend per share of 0.75 out of annual earnings per share of 2.25. Currently, Rubenstein Bros.' stock is selling for 12.50 per share. Adhering to the company's target capital structure, the firm has 10 million in total invested capital, of which 40% is funded by debt. Assume that the firm's book value of equity equals its market value. In past years, the firm has earned a return on equity (ROE) of 18%, which is expected to continue this year and into the foreseeable future. a. Based on this information, what long-run growth rate can the firm be expected to maintain? (Hint: g = Retention rate ROE.) b. What is the stock's required return? c. If the firm changed its dividend policy and paid an annual dividend of 1.50 per share, financial analysts would predict that the change in policy will have no effect on the firm's stock price or ROE. Therefore, what must be the firms new expected long-run growth rate and required return? d. Suppose instead that the firm has decided to proceed with its original plan of dis bursing 0.75 per share to shareholders, but the firm intends to do so in the form of a stock dividend rather than a cash dividend. The firm will allot new shares based on the current stock price of 12.50. In other words, for every 12.50 in dividends due to shareholders, a share of stock will be issued. How large will the stock dividend be relative to the firm's current market capitalist ion? (Hint. Remember that market capitalization = P0 number of shares outstanding.) e. If the plan in part d is implemented, how many new shares of stock will be issued, and by how much will the companys earnings per share be diluted?
Problem 6: Ordinary Shares, Supernormal Growth: The financial manager is deciding whether to invest in XYZ Corporation ordinary shares on Jan. 1, 2022. Dividends of XYZ Corporation was announced to be P30 per share payable on Dec. 31, 2021. Forecasted dividend growth rate is 7% for 2022, 8% for 2023 and 2% for the succeeding years. What is the maximum price per share that the financial manager be willing to pay on Jan. 1, 2022 if the required minimum return is 10%?
Module 6 Question 6 (Stock dividend) Templeton Care Facilities, Inc. was contemplating a stock dividend. The firm's stock price had risen over the last three years and was trading at $150.00per share. The firm's board of directors felt that the trading range should be around $50 to $100, so they wanted to initiate a stock dividend that, other things remaining the same, would result in a $50 share price. What should the stock dividend be so as to result in the desired change in the firm's stock price? Part 1 The stock dividend shold be enter your response here%.
Question 9 Dividends on CCN corporation are expected to grow at a 9% per year. Assume that the discount rate on CCN is 12% and that the expected dividend per share in one year is $0.50. CCN has just paid a dividend, so the next dividend is the $0.50 to be paid one year from now. Assume that CCN's return on equity (ROE) is 12%. What fraction of earnings must CCN be plowing back into the company? *Make sure to input all fraction answers as such: (numerator)/(denominator) \frac{1}{2}21 = 1/2 8. Question 8 Dividends on CCN corporation are expected to grow at a 9% per year. Assume that the discount rate on CCN is 12% and that the expected dividend per share in one year is $0.50. CCN has just paid a dividend, so the next dividend is the $0.50 to be paid one year from now. Calculate the expected price per share 14 years from now. Assume that a dividend has just been paid. *Make sure to input all currency answers without any currency symbols or commas, and use two decimal…
Question 3 The shares of SAD plc are trading at 210p and the company’s dividends are expected to grow at 5 per cent indefinitely into the future, where the required rate of return on the company’s shares is 15 per cent, and the share price can be explained by the constant rate of growth of dividends model. Hence, a) By determining the dividend expected in the next time period, mention how much of the share price of SAD can be attributed to the future growth prospects of the company and how much to its existing assets, if the company finances all of its investments from retentions and the company pays out 75 per cent of its earnings as dividends. b) By explaining what determines that rate of growth of dividends according to the constant rate of growth of dividends model, discuss what is meant by a price earnings (P/E) ratio and its primary determinants. The 12-month trailing P/E ratio of Netflix is 91.51 while that of Goldman Sachs is 10.02. c) Using the above information, try to…
Question 2Salsa Inc. estimates that this year’s earnings will be $75 million. There are 12 million sharesoutstanding at a price of $27.50 per share. Salsa had been following a 100% dividend payoutpolicy until now but would now like to shift to the Residual Dividend policy for this year.Dividends from this year’s earnings are paid next year.a) What is the EPS and DPS for Salsa under the 100% dividend payout policy?b) If the planned capital outlay is for $72 million and the target capital structure is 1.5:1,will Salsa Inc. be able to pay dividends as per the Residual Dividend Policy? Ifso, whatwill be the dividend pershare? Investorsrequire a 22.72% rate of return. Ignoretaxes.c) If Salsa Inc. shifts from a 100% payout policy to the residual dividend policy, whatimpact will this have on its stock price, assuming the firm earns 22.72% as its ROE?Support your argument through relevant computations. Which argument of thedividend policy decision would you have demonstrated through this…
Question content area top Part 1 (Common stock valuation) Assume the following: • the investor's required rate of return is 14.5 percent, • the expected level of earnings at the end of this year (E1) is $6, • the retention ratio is 40 percent, • the return on equity (ROE) is 14 percent (that is, it can earn 14 percent on reinvested earnings), and • similar shares of stock sell at multiples of 6.742 times earnings per share. Questions: a. Determine the expected growth rate for dividends. b. Determine the price earnings ratio (P/E1). c. What is the stock price using the P/E ratio valuation method? d. What is the stock price using the dividend discount model? e. What would happen to the P/E ratio (P/E1) and stock price if the company increased its retention rate to 80 percent (holding all else constant)? What would happen to the P/E ratio (P/E1) and stock price if the company paid out all its earnings in the form of dividends?…
Question 9 Dividends on CCN corporation are expected to grow at a 9% per year. Assume that the discount rate on CCN is 12% and that the expected dividend per share in one year is $0.50. CCN has just paid a dividend, so the next dividend is the $0.50 to be paid one year from now. Assume that CCN's return on equity (ROE) is 12%. What fraction of earnings must CCN be plowing back into the company?
Problem 14-04 You are considering purchasing the preferred stock of a firm but are concerned about its capacity to pay the dividend. To help allay that fear, you compute the times-preferred-dividend-earned ratio for the past three years from the following data taken from the firm’s financial statements: Year 20X1 20X2 20X3 Operating income $ 19,000,000 $ 17,000,000 $ 18,000,000 Interest 6,100,000 3,600,000 10,800,000 Taxes 4,600,000 4,600,000 4,900,000 Preferred dividends 1,100,000 1,500,000 1,000,000 Common dividends 2,100,000 2,900,000 — Round your answers to two decimal places. 20X1: 20X2: 20X3: What does your analysis indicate about the firm’s capacity to pay preferred stock dividends? Times preferred dividend earned has each year, which indicates the firm's capacity to pay the dividend has .
Question 15 Lightscape FX, an exterior landscape lighting company, paid an annual dividend of R1,42 a share last month. The company plans to pay R1,50, R1,75 and R1,80 a share over the next three years respectively. After that, the dividend will be constant at R2 per share per year. What is the market price of this stock if the market rate of return is 10,50%? 1. R18,24 2. R19,66 3. R22,17 4. R25,11
Question 19 A company currently pays a dividend of R2 per share. It is estimated that the company dividend will grow at a rate of 20% per year for the next 2 years and at a constant rate of 7% thereafter. The company’s share has a beta of 1,2. The risk-free rate is 7,5% and the market risk premium is 4%. What is your estimate of the share’s current price? 1. R50,52 2. R51,08 3. R56,76 4. R58,14
pm.2 Procter and Gamble (PG) paid an annual dividend of $2.83 in 2021. You expect PG to increase its dividends by 8.1% per year for the next five years (through 2026), and thereafter by 3.4% per year. If the appropriate equity cost of capital for Procter and Gamble is 8.2% per year, use the dividend-discount model to estimate its value per share at the end of 2021. Question content area bottom Part 1 The price per share is ?