Principles of Managerial Finance, Student Value Edition Plus NEW MyLab Finance with Pearson eText -- Access Card Package (14th Edition)
14th Edition
ISBN: 9780133740912
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Chapter 14, Problem 14.3P
a)
Summary Introduction
To discuss: The residual dividend policy.
b)
Summary Introduction
To determine: The amount of dividend, dividend payout ratio for three capital expenditure amounts.
c)
Summary Introduction
To discuss: The amount of dividends associated with each of the three capital expenditure.
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As president of​ Young's of​ California, a large clothing​ chain, you have just received a letter from a major stockholder. The stockholder asks about the​ company's dividend policy. In​ fact, the stockholder has asked you to estimate the amount of the dividend that you are likely to pay next year. You have not yet collected all the information about the expected dividend​ payment, but you do know the​ following:
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​(1) The company follows a residual dividend policy.
​(2) The total capital budget for next year is likely to be one of three​ amounts, depending on the results of capital budgeting studies that are currently under way. The capital expenditure amounts are ​$2 ​million, ​$3 ​million, and ​$4million.
​(3) The forecasted level of potential retained earnings next year is ​$2 million.
​(4) The target or optimal capital structure is a debt ratio of 40​%.
You have decided to respond by sending the stockholder the best information available to you.
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a. Compute the amount of the…
Sarah just received a letter from a major stockholder. Thestock-holder asks about the company’s dividend policy. In fact,the stockholder has asked you to estimate the amount ofdividend that you are likely to pay next year. You have not yetcollected all the information about the expected dividendpayment but you know the following:
• The Company follows a residual dividend policy• The total capital budget for next year is likely to beone of three amounts, depending on the results ofcapital budgeting studies that are currently underway.The capital expenditure amounts are P2million,P3million and P4million.• The forecasted level of potential retained earningsnext year is P2million• The target or optimal capital structure is a debt ratio of40%.
Compute the amount of dividend (or the amount of newstock needed) and the dividend pay-out ratio for each of thethe three capital expenditure amounts.
Deciding how much earnings to retain and how much to return to ordinary shareholders is a key partof dividend policy. Drawing on the dividend policy literature critically discuss some of the factors thatneed to be considered by senior managers of a listed company when deciding on:a) the size of the annual dividend to return to its shareholders and the practical issues that needto be considered when deciding on the size of the dividend payment.Squeezeco is currently deciding on the level and form of its next dividend. It is consideringthree options:i. A cash dividend payment of 15p per shareii. A 5% scrip dividendiii. A repurchase of 15 % of ordinary share capital at the current market priceExtracts form the company’s financial statements are given below
                    £m             £mOperating profit                      24.5Taxation                            7.8
Distributable earnings…
Chapter 14 Solutions
Principles of Managerial Finance, Student Value Edition Plus NEW MyLab Finance with Pearson eText -- Access Card Package (14th Edition)
Ch. 14.1 - What two ways can firms distribute cash to...Ch. 14.1 - Why do rapidly growing firms generally pay no...Ch. 14.1 - The dividend payout ratio equals dividends paid...Ch. 14.2 - Prob. 1FOPCh. 14.2 - Prob. 14.4RQCh. 14.2 - Prob. 14.5RQCh. 14.2 - Prob. 14.6RQCh. 14.3 - Does following the residual theory of dividends...Ch. 14.3 - Contrast the basic arguments about dividend policy...Ch. 14.4 - Prob. 14.9RQ
Ch. 14.5 - Describe a constant-payout-ratio dividend policy,...Ch. 14.6 - Why do firms issue stock dividends? Comment on the...Ch. 14.6 - Compare a stock split with a stock dividend.Ch. 14 - Prob. 1ORCh. 14 - Prob. 14.1STPCh. 14 - Prob. 14.1WUECh. 14 - Prob. 14.2WUECh. 14 - Prob. 14.3WUECh. 14 - Prob. 14.4WUECh. 14 - Prob. 14.5WUECh. 14 - Dividend payment procedures At the quarterly...Ch. 14 - Prob. 14.2PCh. 14 - Prob. 14.3PCh. 14 - Dividend constraints The Howe Companys...Ch. 14 - Prob. 14.5PCh. 14 - Prob. 14.6PCh. 14 - Prob. 14.7PCh. 14 - Prob. 14.8PCh. 14 - Stock dividend: Firm Columbia Paper has the...Ch. 14 - Cash versus stock dividend Milwaukee Tool has the...Ch. 14 - Stock dividend: Investor Sarah Warren currently...Ch. 14 - Stock dividend: Investor Security Data Company has...Ch. 14 - Stock split: Firm Growth Industries current...Ch. 14 - Prob. 14.14PCh. 14 - Stock split versus stock dividend: Firm Mammoth...Ch. 14 - Prob. 14.16PCh. 14 - Prob. 14.17PCh. 14 - Prob. 14.18PCh. 14 - Prob. 14.19P
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