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Business Finance CORPORATE FIN CUSTOM W/MYFINANCELAB

a) To determine: The new share price, if the company issues 20% stock dividend. Introduction: Distribution of dividend that is in the form of additional shares is termed as stock dividend. Stock dividend is also termed as ‘scrip dividend’. Answer: The new share price is $16.67 per share. Explanation: Given information: H Hotels & Resorts trades for $20 per share. Formula to calculate the new share price: New share price = Trading price 1 + Percentage of stock dividend Compute the new share price: Note: Investors who hold 100 shares will receive 20 additional shares. The total value of shares remains the same. Thus, the price of stock will fall. New share price = Trading price 1 + Percentage of stock dividend = $ 20 1 + 0.20 = $ 16.67 per share Hence, the new share price is $16.67 per share. b) To determine: The new share price when H Hotels & Resorts have 3:2 stock splits. Introduction: Stock split is expressed in terms of ratios and not in percentages. A single share is divided into additional shares once the company declares stock split. Answer: The new share price is $13.33 per share. Explanation: Given information: H Hotels & Resorts trades for $20 per share. Formula to calculate the new share price: New share price = Trading price × Ratio of stock split Compute the new share price: Note: 3:2 stock splits indicate that for every 2 shares, the investors will get one more of the 3 rd share. New share price = Trading price × Ratio of stock split = $ 20 × 2 3 = $ 13.33 per share Hence, the new share price is $13.33 per share. c) To determine: The new share price when H Hotels & Resorts have 1:3 reverse stock splits. Reverse stock split is the method that reduces a company’s share value that is outstanding and increases the price per share. Reverse stock split is the opposite of forward stock splits. This works normally as a regular dividend but reverse action will take place. Answer: The new share price is $60 per share. Explanation: Given information: H Hotels & Resorts trades for $20 per share. Formula to calculate the new share price: New share price = Trading price × Ratio of reverse stock split Compute the new share price: Note: 1:3 reverse split indicate that for every 3 shares, the investors will turn into one share. New share price = Trading price × Ratio of reverse stock split = $ 20 × 3 1 = $ 60 per share Hence, the new share price is $60 per share.

a) To determine: The new share price, if the company issues 20% stock dividend. Introduction: Distribution of dividend that is in the form of additional shares is termed as stock dividend. Stock dividend is also termed as ‘scrip dividend’. Answer: The new share price is $16.67 per share. Explanation: Given information: H Hotels & Resorts trades for $20 per share. Formula to calculate the new share price: New share price = Trading price 1 + Percentage of stock dividend Compute the new share price: Note: Investors who hold 100 shares will receive 20 additional shares. The total value of shares remains the same. Thus, the price of stock will fall. New share price = Trading price 1 + Percentage of stock dividend = $ 20 1 + 0.20 = $ 16.67 per share Hence, the new share price is $16.67 per share. b) To determine: The new share price when H Hotels & Resorts have 3:2 stock splits. Introduction: Stock split is expressed in terms of ratios and not in percentages. A single share is divided into additional shares once the company declares stock split. Answer: The new share price is $13.33 per share. Explanation: Given information: H Hotels & Resorts trades for $20 per share. Formula to calculate the new share price: New share price = Trading price × Ratio of stock split Compute the new share price: Note: 3:2 stock splits indicate that for every 2 shares, the investors will get one more of the 3 rd share. New share price = Trading price × Ratio of stock split = $ 20 × 2 3 = $ 13.33 per share Hence, the new share price is $13.33 per share. c) To determine: The new share price when H Hotels & Resorts have 1:3 reverse stock splits. Reverse stock split is the method that reduces a company’s share value that is outstanding and increases the price per share. Reverse stock split is the opposite of forward stock splits. This works normally as a regular dividend but reverse action will take place. Answer: The new share price is $60 per share. Explanation: Given information: H Hotels & Resorts trades for $20 per share. Formula to calculate the new share price: New share price = Trading price × Ratio of reverse stock split Compute the new share price: Note: 1:3 reverse split indicate that for every 3 shares, the investors will turn into one share. New share price = Trading price × Ratio of reverse stock split = $ 20 × 3 1 = $ 60 per share Hence, the new share price is $60 per share.

Solution Summary: The author calculates the new share price when H Hotels & Resorts has 3:2 stock splits.

CORPORATE FIN CUSTOM W/MYFINANCELAB

CORPORATE FIN CUSTOM W/MYFINANCELAB

3rd Edition

ISBN: 9781323159859

Author: Berk

Publisher: PEARSON C

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Chapter 17, Problem 31P

Chapter 17, Problem 33P

Chapter 17 Solutions

CORPORATE FIN CUSTOM W/MYFINANCELAB

Ch. 17.1 - Prob. 1CC Ch. 17.1 - Prob. 2CC Ch. 17.2 - Prob. 1CC Ch. 17.2 - In a perfect capital market, how important is the...Ch. 17.3 - Prob. 1CC Ch. 17.3 - Prob. 2CC Ch. 17.4 - Prob. 1CC Ch. 17.4 - Prob. 2CC Ch. 17.5 - Is there an advantage for a firm to retain its...Ch. 17.5 - Prob. 2CC

Ch. 17.6 - Prob. 1CC Ch. 17.6 - Prob. 2CC Ch. 17.7 - Prob. 1CC Ch. 17.7 - Prob. 2CC Ch. 17 - Prob. 1P Ch. 17 - ABC Corporation announced that it will pay a...Ch. 17 - Prob. 3P Ch. 17 - RFC Corp. has announced a 1 dividend. If RFCs...Ch. 17 - Prob. 5P Ch. 17 - KMS Corporation has assets with a market value of...Ch. 17 - Natsam Corporation has 250 million of excess cash....Ch. 17 - Suppose the board of Natsam Corporation decided to...Ch. 17 - Prob. 9P Ch. 17 - Suppose BE Press paid dividends at the end of each...Ch. 17 - The HNH Corporation will pay a constant dividend...Ch. 17 - Prob. 12P Ch. 17 - Prob. 13P Ch. 17 - Prob. 14P Ch. 17 - Suppose that all capital gains are taxed at a 25%...Ch. 17 - Prob. 16P Ch. 17 - Prob. 17P Ch. 17 - Prob. 18P Ch. 17 - Prob. 19P Ch. 17 - A stock that you know is held by long-term...Ch. 17 - Clovix Corporation has 50 million in cash, 10...Ch. 17 - Assume capital markets are perfect. Kay Industries...Ch. 17 - Redo Problem 22., but assume that Kay must pay a...Ch. 17 - Harris Corporation has 250 million in cash, and...Ch. 17 - Redo Problem 22, but assume the following: a....Ch. 17 - Prob. 26P Ch. 17 - Prob. 27P Ch. 17 - Explain under which conditions an increase in the...Ch. 17 - Why is an announcement of a share repurchase...Ch. 17 - AMC Corporation currently has an enterprise value...Ch. 17 - Prob. 31P Ch. 17 - Prob. 32P Ch. 17 - Explain why most companies choose to pay stock...Ch. 17 - Prob. 34P Ch. 17 - Prob. 35P

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Suppose IWT has decided to distribute $50 million, which it presently is holding in liquid short-term investments. IWT’s value of operations is estimated to be about $1,937.5 million; it has $387.5 million in debt and zero preferred stock. As mentioned previously, IWT has 100 million shares of stock outstanding. Assume that IWT has not yet made the distribution. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share? Now suppose that IWT has just made the $50 million distribution in the form of dividends. What is IWT’s intrinsic value of equity? What is its intrinsic stock price per share? Suppose instead that IWT has just made the $50 million distribution in the form of a stock repurchase. Now what is IWT’s intrinsic value of equity? How many shares did IWT repurchase? How many shares remained outstanding after the repurchase? What is its intrinsic stock price per share after the repurchase?

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