12:39 Document (1) (7) م tl 48% TOPIC 4: DIVIDEND POLICY Question 1 i. Explain the differences between stock split and stock dividends. What legal constraints might encourage a firm to choose a stock split over a stock dividend? Question 2 FUSTA Company Limited has a dividend reinvestment programme for shareholders. At the end of 2017 you agreed to participate fully in FUSTA Company's DRIPS programme. At that time, you had 100 shares of stock with a market price per share of $46. The share prices and dividends paid over the past four years are shown in the table on the next page. TABLE 4 Share Price After Dividend per Year Dividend Share 2018 $50.75 $2.75 2019 $55.15 $3.00 2020 $60.50 $3.50 2021 $61.25 $4.00 Answer the following questions: a) At the end of 2021 how many shares of stock would you have in FUSTA Company Limited b) What will be the total value of your shares in FUSTA Company Limited at the end of 2018? Question 3 You currently own (the number of shares obtained in question 2 above) of FUSTA Company Limited shares. When compared to similar companies FUSTA Company Limited has a highpayout dividend policy, and is expected to pay $4.50 cash dividend on its shares which has a market price of $61.50. You want a low dividend policy of 2% of the stock price. What will you need to do to convert this high-dividend policy to a low-dividend policy. Assume no taxes exist. I Print Layout Headings Edit Share ||| A Read Aloud
12:39 Document (1) (7) م tl 48% TOPIC 4: DIVIDEND POLICY Question 1 i. Explain the differences between stock split and stock dividends. What legal constraints might encourage a firm to choose a stock split over a stock dividend? Question 2 FUSTA Company Limited has a dividend reinvestment programme for shareholders. At the end of 2017 you agreed to participate fully in FUSTA Company's DRIPS programme. At that time, you had 100 shares of stock with a market price per share of $46. The share prices and dividends paid over the past four years are shown in the table on the next page. TABLE 4 Share Price After Dividend per Year Dividend Share 2018 $50.75 $2.75 2019 $55.15 $3.00 2020 $60.50 $3.50 2021 $61.25 $4.00 Answer the following questions: a) At the end of 2021 how many shares of stock would you have in FUSTA Company Limited b) What will be the total value of your shares in FUSTA Company Limited at the end of 2018? Question 3 You currently own (the number of shares obtained in question 2 above) of FUSTA Company Limited shares. When compared to similar companies FUSTA Company Limited has a highpayout dividend policy, and is expected to pay $4.50 cash dividend on its shares which has a market price of $61.50. You want a low dividend policy of 2% of the stock price. What will you need to do to convert this high-dividend policy to a low-dividend policy. Assume no taxes exist. I Print Layout Headings Edit Share ||| A Read Aloud
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
With the answers to questions 2 provided below please answer question 3
Answer the following questions:
a) At the end of 2021 how many shares of stock would you have in FUSTA Company Limited
b) What will be the total value of your shares in FUSTA Company Limited at the end of 2021?
Number of Shares We Have in 2018 = 100 shares
Dividend to Receive in 2018 = Number of Shares You Have x Dividend Per Share
Dividend to Receive in 2018 = 100 shares x $2.75 = $275
Number of Shares That Can Be Purchased =Total Dividend Received / Market Price Of Share(aka SharePrice)
Number of Shares That Can Be Purchased = $275 / $50.75
= 5.4187 shares
Number of Shares You Have 2019 = 100 + 5.4187 = 105.4187 shares
Dividend to Receive in 2019 = Number of Shares You Have x Dividend Per Share
Dividend to Receive in 2019 = 105.4187 x $3.00 = $316.26
Number of Shares That Can Be Purchased = $316.26 / $55.15
= 5.7345 shares
Number of Shares You Have 2020 = 105.4187 + 5.7345 = 111.1532 shares
Dividend to Receive in 2020 = Number of Shares You Have x Dividend Per Share Dividend to Receive in 2020 = 111.15 x $3.50 = $389.04
Number of Shares That Can Be Purchased = $389.04 / $60.50
= 6.4304 shares
Number of Shares You Have 2021 = 111.15 + 6.43 = 117.58 shares
Dividend to Receive in 2021 = Number of Shares You Have x Dividend Per Share
Dividend to Receive in 2021 = 117.58 x $4.00 = $470.32
Number of Shares That Can Be Purchased = 470.32 / $61.25
= 7.679 shares
Number of Shares you will have at the end of 2021 is:
= 117.58 + 7.679
= 125.259 shares
The total value of these shares in FUSTA Company Limited at the end of 2021
= 125.259 x $61.25
= $7,672.11
Transcribed Image Text:12:39
Document (1) (7)
م
tl 48%
TOPIC 4: DIVIDEND POLICY
Question 1
i. Explain the differences between stock split and stock dividends.
What legal constraints might encourage a firm to choose a stock split over a stock dividend?
Question 2
FUSTA Company Limited has a dividend reinvestment programme for shareholders. At the end of 2017 you agreed to
participate fully in FUSTA Company's DRIPS programme. At that time, you had 100 shares of stock with a market price per
share of $46. The share prices and dividends paid over the past four years are shown in the table on the next page.
TABLE 4
Share Price After
Dividend per
Year
Dividend
Share
2018
$50.75
$2.75
2019
$55.15
$3.00
2020
$60.50
$3.50
2021
$61.25
$4.00
Answer the following questions:
a) At the end of 2021 how many shares of stock would you have in FUSTA Company Limited
b) What will be the total value of your shares in FUSTA Company Limited at the end of 2018?
Question 3
You currently own (the number of shares obtained in question 2 above) of FUSTA Company Limited shares. When
compared to similar companies FUSTA Company Limited has a highpayout dividend policy, and is expected to pay $4.50
cash dividend on its shares which has a market price of $61.50. You want a low dividend policy of 2% of the stock price.
What will you need to do to convert this high-dividend policy to a low-dividend policy. Assume no taxes exist.
I
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Layout
Headings
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|||
A
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