House of Haddock has 5,060 shares outstanding and the stock price is $146. The company is expected to pay a dividend of $26 per share next year and thereafter the dividend is expected to grow indefinitely by 3% a year. The president, George Mullet, now makes a surprise announcement: He says that the company will henceforth distribute half the cash in the form of dividends and the remainder will be used to repurchase stock. The repurchased stock will not be entitled to the dividend. a-1. What is the total value of the company before the announcement? a-2. What is the total value of the company after the announcement? a-3. What is the value of one share? b. What is the expected stream of dividends per share for an investor who plans to retain his shares rather than sell them back to the company? Check your estimate of share value by discounting this stream of dividends per share. Complete this question by entering your answers in the tabs below. Req A1 to A3 Req B a-1. What is the total value of the company before the announcement? a-2. What is the total value of the company after the announcement? a-3. What is the value of one share? a-1. Total value before announcement a-2 Total value after announcement a-3 Value per share

House of Haddock has 5,060 shares outstanding and the stock price is $146. The company is expected to pay a dividend of $26 per share next year and thereafter the dividend is expected to grow indefinitely by 3% a year. The president, George Mullet, now makes a surprise announcement: He says that the company will henceforth distribute half the cash in the form of dividends and the remainder will be used to repurchase stock. The repurchased stock will not be entitled to the dividend. a-1. What is the total value of the company before the announcement? a-2. What is the total value of the company after the announcement? a-3. What is the value of one share? b. What is the expected stream of dividends per share for an investor who plans to retain his shares rather than sell them back to the company? Check your estimate of share value by discounting this stream of dividends per share. Complete this question by entering your answers in the tabs below. Req A1 to A3 Req B a-1. What is the total value of the company before the announcement? a-2. What is the total value of the company after the announcement? a-3. What is the value of one share? a-1. Total value before announcement a-2 Total value after announcement a-3 Value per share

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

See similar textbooks

Similar questions

The Quick Buck Company is an all-equity firm that has been in existence for the past three years. Company management expects that the company will last for two more years and then be dissolved. The firm will generate cash flows of $860,000 next year and $1,340,000 in two years, including the proceeds from the liquidation. There are 38,000 shares of stock outstanding and shareholders require a return of 11 percent. a. What is the current price per share of the stock? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. The board of directors is dissatisfied with the current dividend policy and proposes that a dividend of $960,000 be paid next year. To raise the cash necessary for the increased dividend, the company will sell new shares of stock. How many shares of stock must be sold? What is the new price per share of the existing shares of stock? Note: Do not round intermediate calculations and round your answers to 2 decimal places,…
L. Sanders Manufacturing paid a dividend last year of $5 per share. The dividend is expected to grow at a constant rate of 8% per year. The price of L. Sanders Manufacturing's stock today is $29 per share. If L. Sandaers Manufacturing decides to issue new common stock, flotation costs will equal $2.50 per share. Based on the above information, the cost of new common stock is OA. 28.38%. OB. 31.40%. OC. 26.62%. OD. 24.12%. OE. None of the above.
Beta Corporation’s current stock price is $90 and total number of shares is 1 billion. The company will generate free cash flow of $10 billion for the year ahead, all of which it will payout to its shareholders as a dividend. What would be the price at the ex dividend date? (SHOW YOUR WORK)
Shatin Intl. has 9.8 million shares, an equity cost of capital of 12.8% and is expected to pay a total dividend of $19.1 million each year forever. It announces that it will increase its payout to shareholders. Instead of increasing its dividend, it will keep it constant and will start repurchasing $10.3 million of stock each year as well. What is your estimate of Shatin's stock price after this announcement?
Storm plc has 5,000 shares outstanding and the stock price is £140. The company is expected to pay a dividend of £20 per share next year and thereafter the dividend is expected to grow indefinitely by 5% a year. The president, Jack Mora, now makes a surprise announcement: He says that the company will henceforth distribute half the cash in the form of dividends and the remainder will be used to repurchase stock. The repurchased stock will not be entitled to the dividend. a) Discuss how the announcement affect the value of the company. b) Advise the shareholders should they choose the cash dividends, or the stock repurchase.
Shatin Intl. has 10 million shares, an equity cost of capital 12%, and is expected to pay a total dividend of $20 million each year forever. It announces that it will increase its payout to shareholders. Instead of increasing its dividend, it will keep it constant and will start repurchasing $12 million of stock each year as well. How much will its stock price increase? The stock price will increase by $ (Round to the nearest cent.)
Metal Inc. has not issued a dividend. It is management's intention to do so beginning three years from today. The initial annual dividend is expected to be $3.00. Over the subsequent three years the annual dividends are expected to grow by 15% per year and then 10% per year for 4 years before slowing to a permanent growth rate of 3.5% per year. Determine the dollar value of the 2nd dividend.
Little Oil has outstanding 1 million shares with a total market value of $29 million. The firm is expected to pay $1.00 million of dividends next year, and thereafter, the amount paid out is expected to grow by 5% a year in perpetuity. Thus, the expected dividend is $1.05 million in year 2, $1.1025 million in year 3, and so on. However, the company has heard that the value of a share depends on the flow of dividends, and therefore, it announces that next year's dividend will be increased to $2 million and that the extra cash will be raised immediately afterward by an issue of shares. After that, the total amount paid out each year will be as previously forecasted, that is, $1.05 million in year 2 and increasing by 5% in each subsequent year. A. At what price will the new shares be issued in year 1? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. B. How many shares will the firm need to issue? Note: Do not round intermediate calculations. Round your…
Kelsey Drums, Inc., is a well-established supplier of fine percussion instruments to orchestras all over the United States. The company's class A common stock has paid a dividend of $4.84 per share per year for the last 14 years. Management expects to continue to pay at that amount for the foreseeable future. Kim Arnold purchased 300 shares of Kelsey class A common 5 years ago at a time when the required rate of return for the stock was 8.3%. She wants to sell her shares today. The current required rate of return for the stock is 5.30%. How much total capital gain or loss will Kim have on her shares? 1. The value of the stock when Kim purchased it was $____per share. (Round to the nearest cent.) 2.The value of the stock if Kim sells her shares today is $_______ per share. (Round to the nearest cent.) 3. The total capital gain (or loss) Kim will have on her shares is $_______. (Round to the nearest dollar. Enter a positive number for a capital gain and a negative…

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS