Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 13, Problem 8SP
a)
Summary Introduction
To determine: The yearly dividend per share.
b)
Summary Introduction
To determine: The yearly dividend per share.
c)
Summary Introduction
To determine: The yearly dividend per share.
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Final earnings estimate for Alltime Fitness Center have been prepared for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock outstanding. As assistant to the CFO, you are asked to determine the yearly dividend per share to be
paid depending on the following possible policies:
A stable dollar dividend targeted at 40 percent of earnings over a 5-year period.
A small, regular dividend of $0.60 per share plus a year-end extra when the profits in any year exceed $20 million. The year-end extra dividend will equal 50 percent of profits exceeding $20 million.
A constant dividend payout ratio of 40 percent.
Year
Profit after tax ($’million)
1
18
2
21
3
19
4
23
5
25
Explain the pros and cons of each dividend policie
The Foreman Company’s earnings and common stock dividends have been growing at an annual rate of 5 percent over the past 10 years and are expected to continue growing at this rate for the foreseeable future. The firm currently (that is, as of year 0) pays an annual dividend of $5 per share. Determine the current value of a share of Foreman common stock to investors with each of the following required rates of return. Use a minus sign to indicate negative answers and NA to indicate undefined answers. Round your answers to the nearest cent.
14 percent$
15 percent$
16 percent$
5 percent$
3 percent$
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
$
18,000,000
$
16,000,000
$
14,000,000
Interest
6,500,000
5,500,000
3,300,000
Taxes
4,200,000
4,800,000
5,400,000
Preferred dividends
1,500,000
800,000
700,000
Common dividends
2,500,000
3,500,000
—
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 (declined or increased) each year, which indicates the firm's capacity to pay the dividend has (diminished or improved)
Chapter 13 Solutions
Foundations Of Finance
Ch. 13 - What is meant by the term dividend payout ratio?Ch. 13 - Prob. 2RQCh. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Prob. 7RQCh. 13 - Prob. 8RQCh. 13 - Prob. 9RQCh. 13 - Prob. 10RQ
Ch. 13 - Prob. 1SPCh. 13 - (Dividend policy and the issue of new shares of...Ch. 13 - Prob. 3SPCh. 13 - (Dividend policy and stock prices) The issue as to...Ch. 13 - (Residual dividend policy) FarmCo, Inc. follows a...Ch. 13 - (Legal restrictions on dividend payments) Describe...Ch. 13 - (Practical considerations in setting dividend...Ch. 13 - Prob. 8SPCh. 13 - Prob. 9SPCh. 13 - Prob. 10SPCh. 13 - Prob. 11SPCh. 13 - Prob. 12SPCh. 13 - Prob. 13SPCh. 13 - Prob. 14SPCh. 13 - Prob. 15SPCh. 13 - Prob. 16SPCh. 13 - Prob. 1.1MCCh. 13 - The executive vice-president in charge of finance...Ch. 13 - Prob. 2.1MCCh. 13 - Prob. 2.2MCCh. 13 - Prob. 2.3MC
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY