Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
14th Edition
ISBN: 9780133507690
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Chapter 14.6, Problem 14.11RQ
Why do firms issue stock dividends? Comment on the following statement: “I have a stock that promises to pay a 20% stock dividend every year, and therefore it guarantees that I will break even in 5 years.”
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Students have asked these similar questions
Suppose Acap Corporation will pay a dividend of $2.83 per share at the end of this year and $3.07 per share next year.
You expect Acap's stock price to be $52.34 in two years. Assume that Acap's equity cost of capital is 10.7%.
a. What price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for two years?
b. Suppose, instead, you plan to hold the stock for one year. For what price would you expect to be able to sell a share
of Acap stock in one year?
c. Given your answer in part b, what price would you be willing to pay for a share of Acap stock today if you planned to
hold the stock for one year? How does this price compare to your answer in part a?
a. If you planned to hold the stock for two years, the price you would pay for a share of Acap stock today is $ (Round
to the nearest cent.)
A stock currently pays a $3 dividend out of $9 of earnings (EPS). If earnings (EPS) are expected
to be $9+1 next year and you expect the company to continue with the same payout policy,
what will next year's dividend be?
Suppose Acap Corporation will pay a dividend of
$2.89
per share at the end of this year and
$2.93
per share next year. You expect Acap's stock price to be
$52.48
in two years. Assume that Acap's equity cost of capital is
11.3%.
a. What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?
b. Suppose instead you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year?
c. Given your answer in
(b),
what price would you be willing to pay for a share of Acap stock today if you planned to hold the stock for one year? How does this compare to your answer in
(a)?
Chapter 14 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Ch. 14.1 - What two ways can firms distribute cash to...Ch. 14.1 - Why do rapidly growing firms generally pay no...Ch. 14.1 - The dividend payout ratio equals dividends paid...Ch. 14.2 - Prob. 1FOPCh. 14.2 - Prob. 14.4RQCh. 14.2 - Prob. 14.5RQCh. 14.2 - Prob. 14.6RQCh. 14.3 - Does following the residual theory of dividends...Ch. 14.3 - Contrast the basic arguments about dividend policy...Ch. 14.4 - Prob. 14.9RQ
Ch. 14.5 - Describe a constant-payout-ratio dividend policy,...Ch. 14.6 - Why do firms issue stock dividends? Comment on the...Ch. 14.6 - Compare a stock split with a stock dividend.Ch. 14 - Prob. 1ORCh. 14 - Prob. 14.1STPCh. 14 - Prob. 14.1WUECh. 14 - Prob. 14.2WUECh. 14 - Prob. 14.3WUECh. 14 - Prob. 14.4WUECh. 14 - Prob. 14.5WUECh. 14 - Dividend payment procedures At the quarterly...Ch. 14 - Prob. 14.2PCh. 14 - Prob. 14.3PCh. 14 - Dividend constraints The Howe Companys...Ch. 14 - Prob. 14.5PCh. 14 - Prob. 14.6PCh. 14 - Prob. 14.7PCh. 14 - Prob. 14.8PCh. 14 - Stock dividend: Firm Columbia Paper has the...Ch. 14 - Cash versus stock dividend Milwaukee Tool has the...Ch. 14 - Stock dividend: Investor Sarah Warren currently...Ch. 14 - Stock dividend: Investor Security Data Company has...Ch. 14 - Stock split: Firm Growth Industries current...Ch. 14 - Prob. 14.14PCh. 14 - Stock split versus stock dividend: Firm Mammoth...Ch. 14 - Prob. 14.16PCh. 14 - Prob. 14.17PCh. 14 - Prob. 14.18PCh. 14 - Prob. 14.19P
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY