Net profit of Lily Fashion House Ltd in the current year is $2,575, 000. The company is planning to launch a project that will requires an investment of $745 000 next year. Today the company’s stock has market value of $22/share. Lily Fashion House has the current capital structure of 60% in equity and 40% in debt. Required: a. The company is paying a cash dividend of $4.50/share plus an extra-cash dividend of $1.5/share. Tomorrow the stock will go ex-dividend. Explain why there is ex-dividend date and ex-dividend price? Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 25%? b. How much dividend Lily Fashion House can pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies?
Net profit of Lily Fashion House Ltd in the current year is $2,575, 000. The company is planning
to launch a project that will requires an investment of $745 000 next year. Today the company’s
stock has market value of $22/share. Lily Fashion House has the current capital structure of 60%
in equity and 40% in debt. Required:
a. The company is paying a cash dividend of $4.50/share plus an extra-cash dividend of
$1.5/share. Tomorrow the stock will go ex-dividend. Explain why there is ex-dividend date
and ex-dividend price? Calculate the ex-dividend price tomorrow morning. Assuming the
tax on dividend is 25%?
b. How much dividend Lily Fashion House can pay its shareholders this year and what is
dividend payout ratio of the company. Assume the Residual Dividend Payout Policy
applies?
Step by step
Solved in 2 steps
