the balance sheet look like after the dividends are paid?Q.4 Rudolph Corporation is evaluating an extra dividend versus a share repurchase. In either case,$11,000 would be spent. Current earnings are $1.40 per share, and the stock currently sells for $58per share. There are 2,000 shares outstanding. Ignore taxes and other imperfections in answering thefirst two questions.(a) Evaluate the two alternatives in terms of the effect on the price per share of the stock andshareholder wealth.(b) What will be the effect on Rudolph's EPS and P/E ratio under the two different scenarios?(c) In the real world, provided tax deductions are made, which of these actions would yourecommend? Why?O SearchEND OF ASSIGNMENThp11- what will0 1WV

a) Alternative 1, extra Dividends: Dividends per share =11,000/2000 = $5.5 Price of stock after…

Answered: Q.4 Rudolph Corporation is evaluating…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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QUESTION ONE A. Why is the goal of financial management to maximize the current share price of the company's stock and not the future share price? B. Jane Muyaule has been given an opportunity to receive K20,000, six years from now. If she can earn 10% on her investments, what is the most she should pay for this opportunity? C. Explain why a company might issue convertible securities instead of straightforward debt or equity. Also, explain how convertibility affects expected return on investment. D. ZedChem is a pharmaceutical company in Zambia. The company's research department has identified a compound that can cure a common cold without any side effects. Unfortunately, the manufacture of this compound requires the company to invest heavily in a high technology factory which will use a number of new techniques, some of which are unproven. The company will also need to recruit and retain the services of a number of eminent scientists, each of whom is both vital to the project and…
A firm has 7,000 outstanding shares with current value of 10£ per share. Planned dividend is £5 per share. What is the ex-dividend share price? How much is the share price if the company decides to use the cash it had originally earmarked for dividend for a share repurchase instead? A. £5, £10 B. £10, £5 C. £8, £10 D. £2, £12 ( explain well with step by step answer ).
am. 128.
Tecumseh Inc. is analyzing the possible merger with Devonshire Inc. Savings from the merger are estimated to be a one-time after-tax benefit of $156 million. Devonshire Inc. has 5.2 million shares outstanding at a current market price of $82 per share. What is the maximum cash price per share that could be paid for Devonshire Inc.? (Omit "$" sign in your response.) Maximum cash price per share $
In the above example, suppose the firm had paid $80 per share when buying back shares with its $100 in cash. (Assume that the firm can buy back fractional shares.) In this and the following two questions, fill in the blanks in the table below. Cash Other assets Total market value of stock Shares Share price Do not use $ sign. Answer to nearest whole number. The missing value for a is: Before buyback $100 $400 $500 10 $50 After buyback 0 $400 a b C
Ab. 127.
Q.An all-equity company that has a current value $300,000 is considering borrowing $60,000 and using the borrowed funds to repurchase shares. The company can borrow at 5%. Assume all available earnings are immediately distributed to common shareholders and all the M&M assumptions are satisfied except the corporate tax rate is 35%, and investors are subject to an 18% tax rate on equity income and a 25% tax rate on debt income. If the company proceeds with the capital restructuring, what will be the value of the company according to M&M Proposition I with personal and corporate taxes?
Kk.436.
Question 2: On November 1, 2021, Mr. Daniel Kim, an individual stockinvestor, pays attention to the news that Dongguk Corp. may report an earnings surprise thanks to the booming demand for natural gas pipe associated with rising shale gas production in the US. In order to make an investment judgement through a price multiple comparison method, Mr. Kim chooses to deploy PER (Price-Earnings Ratio) computed as following: PER per share stock price of Dongguk Corp. November 1, 2021) / expected per share net income for the fiscal year of 2021 For comparison purpose, Mr. Kim selects 5 firms that belong to the same industry as Dongguk Corp. that are also similar in firm size, and calculates the average PER using above formula. As a result, Mr. Kim gets a multiple of 15 for Dongguk Corp, whereas the average multiple of those five firms is 12. Based on this multiple comparison, Mr. Kim concluded that the stock market overprices the shares of Dongguk Corp. and gives up investment in Dongguk Corp.…
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A1. Payout policy (Answer all parts of this question.) (a) , What is the main theorem of Modigliani and Miller regarding the payout policy of firms? Explain. 1 (b) List four assumptions that must hold for the Modigliani-Miller theorem to be valid. (c) Consider a company that has 100 million shares outstanding. The market value of the company is currently at GBP 5 billion. Last year, the company paid out an annual dividend of GBP 2 per share. This year, the company intends to double the dividend to shareholders, but since the company has not enough cash, the company intends to raise the additional money required to pay the dividend in rights issue. i. ( If the price of a new share offered is GBP 25, what is the fair value of a right to buy a new share? Hint: The company first pays the dividends, and then raises the capital. ii. ( ) Contrary to theory, however, as soon as the company announces the rights issue, the share price drops. Why? Think of a reason why this transaction, i.e.,…
As discussed in the text, in the absence of market imperfections and tax effects, we would expect the share price to decline by the amount of the dividend payment when the stock goes ex dividend. Once we consider the role of taxes, however, this is not necessarily true. One model has been proposed that incorporates tax effects into determining the ex-dividend price: (P0 – PX)/D = (1 – TP)/(1 – TG) Here P0 is the price just before the stock goes ex, PX is the ex-dividend share price, D is the amount of the dividend per share, TP is the relevant marginal personal tax rate on dividends, and TG is the effective marginal tax rate on capital gains. a. If TP = TG = 0, how much will the share price fall when the stock goes ex? multiple choice PX P0 D b. If TP = 16 percent and TG = 0, how much will the share price fall? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)…

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