EBK FOUNDATIONS OF FINANCE
10th Edition
ISBN: 9780135160473
Author: KEOWN
Publisher: PEARSON CO
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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
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
(a) Explain the pros and cons of each dividend policies.
PLEASE START FROM SECTION C
INSTRUCTIONS:
Answer the following questions, using spreadsheet financial functions to do the calculations.
Use the following information about SV Inc. to calculate the company’s Cost of Capital.
The stock of SV Inc. sells for $50, and last year’s dividend was $2.10.
A flotation cost of 10% would be required to issue new common stock.
SVs’ preferred stock pays a dividend of $3.30 per share, and new preferred could be sold at a price to net the company $30 per share.
Security analysts are projecting that the common dividend will grow at a rate of 7% a year.
The firm can issue additional long-term debt at an interest rate (or a before-tax cost) of 10%, and its marginal tax rate is 35%. The market risk premium is 6%, the risk-free rate is 6.5%, and Supreme Ventures’ beta is 0.83.
In its cost-of-capital calculations, SV Inc. uses a target capital structure with 45% debt, 5% preferred stock, and 50% common equity.
REQUIRED:
SECTION A
Calculate the…
Chapter 13 Solutions
EBK 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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