COMM 217 - Tutorial 8
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Concordia University *
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Course
217
Subject
Communications
Date
Jan 9, 2024
Type
Pages
3
Uploaded by DoctorSnake11465
COMM 217 TUTORIAL #8 Problem 1: Capital structure Boretti Company reported the following at the end of 2022: Statement of Financial Position Assets $900,000 Liabilities 600,000 S
hareholders’ equity
300,000 In 2023, Boretti considered whether to issue more debt to fund a $200,000 project or to issue additional shares. Boretti’s current debt contracts contain a clause that requires it to maintain a debt-to-equity ratio of 2.5 or less. Required:
1.
Calculate Boretti
’s
current debt-to-equity ratio. 2.
Calculate Boretti
’s debt
-to-equity ratio assuming it funds the project using additional debt. 3.
Calculate Boretti
’s debt
-to-equity ratio assuming it funds the project by issuing shares. 4.
How do you recommend Boretti fund the project?
Problem 2: Effect of equity transactions on specific accounts and preparation of shareholders’ equity section The shareholders’ equity section of Fryman
Company showed the following details as at January 1, 2023: Common shares, no par value, 250,000 shares issued and outstanding 500,000 Retained earnings 400,000 Total shareholders’ equity
$900,000 The following events related to equity occurred in 2023: March 10 Purchased a building that was appraised for $1,000,000. The seller agreed to receive 100,000 common shares of Fryman in exchange for the building. The common shares were trading actively in the market at $9.5 per share on that day. July 1 Declared a cash dividend of $0.50 per common share, payable on August 1 to shareholders of record on July 21. August 1 Paid the cash dividend declared on July 1. Dec. 31 Determined that net earnings for the year amounted to $215,000. Required
: 1.
Record the effects of the transactions on the relevant accounts using the accounting equation. 2.
Prepare the shareholders’ equity section of Fryman’s statement of financial position as at December 31, 2023.
Problem 3: Analyzing dividend policy BCE Inc. is Canada’s largest telecommunications company. The following information was extracted from the company’s annual reports
. (Amounts in millions of Canadian dollars.) 2022 2021 2020 2019 2018 Dividends declared $3,356 $3,175 $3,011 $2,857 $2,712 Net earnings 2,926 2,892 2,699 3,253 2,973 Dividends per common share 3.68 3.50 3.33 3.17 3.02 Market price per share 59.49 65.81 54.43 60.16 53.93 Dividend yield 6.19% 5.32% 6.12% 5.27% 5.60% Assume that you are a financial analyst preparing a forecast of BCE
’s operating results for fiscal year 2023. Because of several factors, you believe that net earnings for 2023 will be in the range of $2,900 million to $3,000 million. To complete your financial forecast, you now need to estimate the total amount of dividends that BCE will pay. Required: 1.
BCE
’s board of directors has increased dividends per share continuously over the past five years. What is your expectation of dividends per share for fiscal year 2023? Justify your answer. 2.
The total dividends declared by BCE was below net earnings in both the years 2018 and 2019, but they exceeded net earnings starting in 2020. Can a company distribute dividends that exceed its net earnings in any give year? 3.
Compute the dividend yield for the years 2018
–
2022. What should be the market price per share for the dividend yield to reach 6.20% in 2023, assuming a dividend of $3.90 per share? Explain.
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