Concept explainers
a)
To discuss: The appropriate events in respective dates.
a)
Explanation of Solution
Following are appropriates matched with respective events:
Date | Event |
Friday, July 25 | Declaration date |
Monday, August 11 | Last with-dividend date |
Tuesday , August 12 | Ex-dividend date |
Thursday, August 14 | Record date |
Tuesday, September 2 | Payment date |
b)
To determine: The date at which the stock price is fell by $0.83 and the reason.
b)
Explanation of Solution
The date is on August 12 and it was the ex-dividend date, the fall in price due to the buyers of the stock on the ex-dividend date are not included in the firm’s books prior to the record date and therefore they are not entitled to get the dividend and the price is fall by approximately the dividend amount.
c)
To determine: The dividend yield of the company E.
Dividend yield is the ratio between a firm’s yearly dividend to its share price and it is denoted as percentage.
c)
Explanation of Solution
The formula to compute dividend yield is as follows:
The computation of dividend yield is as follows:
Therefore, the dividend yield of company E is 4.68%.
d)
To determine: The payout ratio of the company E.
Payout ratio is the ratio which shows the amount of dividend that a firm gives out to its shareholders from its current earnings.
d)
Explanation of Solution
The payout ratio is calculated as follows:
The computation of payout ratio is as follows:
Therefore, the payout ratio of the company E is 56.27%.
e)
To determine: The impact on stock price if the company E paid a 10% stock dividend.
e)
Explanation of Solution
If the stock dividend is raised the number of shares outstanding without altering the market value of the firm, hence, the value per share will reduce.
The formula to compute expected stock price is as follows:
The computation of expected stock price is as follows:
Hence, the expected stock price is $64.55.
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Chapter 16 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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