Net profit of Harper Holding Ltd in the current year is $3,546,000. The company is planning to launch a project that will requires an investment of $1,045,000 next year. Today the company's stock has market value of $72/share. Harper Holding Ltd has the current capital structure of 65% in equity and 35% in debt. Required: a. How much dividend can Harper Holding Ltd pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies.
Net profit of Harper Holding Ltd in the current year is $3,546,000. The company is planning to launch a project that will requires an investment of $1,045,000 next year. Today the company's stock has market value of $72/share. Harper Holding Ltd has the current capital structure of 65% in equity and 35% in debt. Required: a. How much dividend can Harper Holding Ltd pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies.
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
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Transcribed Image Text:QUESTION 6 :
Net profit of Harper Holding Ltd in the current year is $3,546,000. The company is planning to
launch a project that will requires an investment of $1,045,000 next year. Today the company's
stock has market value of $72/share. Harper Holding Ltd has the current capital structure of 65%
in equity and 35% in debt. Required:
a. How much dividend can Harper Holding Ltd pay its shareholders this year and what is
dividend payout ratio of the company. Assume the Residual Dividend Payout Policy
applies.
b. The company is paying a cash dividend of $5.50/share plus an extra-cash dividend of
$2.5/share. Tomorrow the stock will go ex-dividend. Calculate the ex-dividend price
tomorrow morning. Assuming the tax on dividend is 15%?
c. M&T Ltd. is a daughter company of the Harper Holding and currently under a liquidation
plan due to severe business contraction. The company plans to pay total dividend of $8.5
million now and $ 12.5 million one year from now as a liquidating dividend. The required
rate of return for shareholders is 12%. Calculate the current value of the firm's equity in
total and per share if the firm has 1.5 million shares outstanding?
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