Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 15, Problem 1P
Louisiana Timber Company currently has 5 million shares of stock outstanding and will report earnings of
a. What is the immediate dilution potential for this new stock issue?
b. Assume the Louisiana Timber Company can earn 11 percent on the proceeds of the stock issue in time to include it in the current year’s results. Should the new issue be undertaken based on earnings per share?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Pimento Inc. estimates that this year’s earnings will be $75 million. There are 12 million shares outstanding at a price of $27.50 per share. Pimento had been following a 100% dividend payout policy until now but would now like to shift to the Residual Dividend policy for this year. Dividends from this year’s earnings are paid next year.
a) What is the EPS and DPS for Pimento under the 100% dividend payout policy?
b) If the planned capital outlay is for $72 million and the target capital structure is 1.5:1, willPimento be able to pay dividends as per the Residual Dividend Policy? If so, what will be the dividend per share? Investors require a 22.72% rate of return. Ignore taxes.
c) IfPimento shifts from a 100% payout policy to the residual dividend policy, what impact will this have on its stock price, assuming the firm earns 22.72% as its ROE? Support your argument through relevant computations. Which argument of the dividend policy decision would you have demonstrated…
Graham & Sons wishes to evaluate a proposed merger into the RCN Group. Graham had 2019 earnings of $250,000, has 100,000 shares of common stock outstanding, and expects earnings to grow at an annual rate of 9%. RCN had 2019 earnings of $900,000, has 200,000 shares of common stock outstanding, and expects its earnings to grow at 3% per year.
a. Calculate the expected earnings per share (EPS) for Graham & Sons for each of the next 5 years (2020-2024) without the merger.
part A answers are completed
year 2020: $2.725
year 2021: $2.97425
year 2022: $3.24239
year 2023: $3.53487
year 2024: $3.85425
b. What would Graham's stockholders earn in each of the next 5 years (2020-2024) on each of their Graham shares swapped for RCN shares at a ratio of 0.8 share of RCN for 1 share of Graham?
Part B is where I need help.
year 2020 EPS: $3.43
year 2021 EPS: $ ?year 2022 EPS: $ ?year 2023 EPS: $ ?
year 2023 ESP: $ ?
please help me find calculation for year 2021 to year…
Graham & Sons wishes to evaluate a proposed merger into the RCN Group. Graham had 2019 earnings of $250,000, has 100,000 shares of common stock outstanding, and expects earnings to grow at an annual rate of 9%. RCN had 2019 earnings of $900,000, has 200,000 shares of common stock outstanding, and expects its earnings to grow at 3% per year.
a. Calculate the expected earnings per share (EPS) for Graham & Sons for each of the next 5 years (2020-2024) without the merger.
b. What would Graham's stockholders earn in each of the next 5 years (2020-2024)on each of their Graham shares swapped for RCN shares at a ratio of 0.8 share of RCN for 1 share of Graham?
Chapter 15 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Ch. 15 - Prob. 1DQCh. 15 - Prob. 2DQCh. 15 - Prob. 3DQCh. 15 - Prob. 4DQCh. 15 - Prob. 5DQCh. 15 - Prob. 6DQCh. 15 - Prob. 7DQCh. 15 - Prob. 8DQCh. 15 - Prob. 9DQCh. 15 - Prob. 10DQ
Ch. 15 - What is privatization? (LO15-5)Ch. 15 - Louisiana Timber Company currently has 5 million...Ch. 15 - The Hamilton Corporation Company has 4 million...Ch. 15 - American Health Systems currently has 6,400,000...Ch. 15 - Using the information in Problem 3, assume that...Ch. 15 - Jordan Broadcasting Company is going public at 50...Ch. 15 - Prob. 6PCh. 15 - Tiger Golf Supplies has 25 million in earnings...Ch. 15 - Prob. 8PCh. 15 - Walton and Company is the managing investment...Ch. 15 - Prob. 10PCh. 15 - Prob. 11PCh. 15 - Prob. 12PCh. 15 - Prob. 13PCh. 15 - Prob. 14PCh. 15 - Prob. 15PCh. 15 - Prob. 16PCh. 15 - Prob. 17PCh. 15 - Midland Corporation has a net income of 19...Ch. 15 - Prob. 19PCh. 15 - Prob. 20PCh. 15 - Prob. 21PCh. 15 - Prob. 22P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- A company has net earnings of AED 10,000 for the current vear and suppose the company maintai the same earnings for the next year. The company has 1,000 total outstanding shares during the current year. The company decides to buyback 40% of its shares in the following year. Show how this decision will impact the company's earnings per share?arrow_forwardGraham & Sons wishes to evaluate a proposed merger into the RCN Group. Graham had 2019 earnings of $300,000, has 100,000 shares of common stock outstanding, and expects earnings to grow at an annual rate of 7%. RCN had 2019 earnings of $900,000, has 200,000 shares of common stock outstanding, and expects its earnings to grow at 5% per year. a. Calculate the expected earnings per share (EPS) for Graham & Sons for each of the next 5 years (2020-2024) without the merger. b. What would Graham's stockholders earn in each of the next 5 years (2020-2024) on each of their Graham shares swapped for RCN shares at a ratio of 0.8 share of RCN for 1 share of Graham? a. The expected EPS for Graham & Sons for year 2020 without the merger is $ ? (Round to the nearest cent.) The expected EPS for Graham & Sons for year 2021 without the merger is $ ? (Round to the nearest cent.) The expected EPS for Graham & Sons for year 2022 without the…arrow_forwardriver stock plans to pay dividends of $1.36, 1.15, $1.35, and $1.62 at the end of the next four years, respectively. After that, the company will be sold and shareholders are expected to receive $82.40 per share in year 6 when the sale should be finalized. If the required return is 11.4 percent, what is the current value of one share of this sock? $46.50 $51.08 $47.29 $47.71 $51.87arrow_forward
- The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income inthe current year is $250,000. The company is planning to launch a project that will requires aninvestment of $175,000 next year. Currently the share of Giant machinery is $25/share.Required:a) How much dividend Giant Machinery can pay its shareholders this year and what is dividendpayout ratio of the company? Assume the Residual Dividend Payout Policy applies. b) If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend.Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%. c) Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidationplan due to the severe contraction of operation due to corona virus. The company plans to paytotal dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend.The required rate of return for shareholders is 12%.…arrow_forwardThe Link Resport & Spa Company has 75,000 shares of stock outstanding. The company is expected to have total earnings next year of $500,000. The company plans to reinvest $275,000 in projects earning an (equity) return of 15%, and to return the remainder of its earnings to shareholders in the form of dividends or stock repurchases. The first dividend or repurchse payments will be made exactly one year from today. In all future years, the market expects the company's reinvestment rate and the return on reinvested earnings to remain constant. The required return on equity is 12%. What is the value of the firm today, if it 1.) uses the remaining $225,000 to pay dividends, and will continue this payout policy (as a percent of earnings) in future years? 2) uses 40% of its annual payout to repurchase stock, and uses the remainder to pay divdends (and will continue this policy in future years)? Assume that the firm will use the remaining $225,000 to pay dividends (and will continue this…arrow_forwardNet 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…arrow_forward
- Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned$3.41 per share and paid cash dividends of$1.71per share(D0equals$ 1.71). Grips' earnings and dividends are expected to grow at20%per year for the next 3 years, after which they are expected to grow 5%per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of 14% on investments with risk characteristics similar to those of Grips?arrow_forwardNet profit of Green Forest Ltd in the current year is $2,355,000. The company is planning to launch a project that will requires an investment of $ 945,000 next year. The common stock of the company goes ex-dividend tomorrow. The stock closed at a price of $35.65 per share today. The company is paying a cash dividend of $4.50 a share and an extra cash dividend of $1.5 a share. Required: Calculate the net profit available for dividend payment and dividend payout ratio of the company, assuming the capital structure of the company is 60% equity funding, 40% debt funding, using the Residual Dividend Payout Policy. Assuming the tax rate on dividends is 25%. Calculate the ex-dividend price tomorrow morningarrow_forwardA transportation company needs to determine the cost of capital of its shares common. The company's stock is currently selling for $ 57.50. The company expects pay a dividend of $ 3.40 at the end of the year (2020). The following table shows the dividends of the last 5 years. Year Dividend2019 $ 3.102018 2.922017 2.602016 2.302015 2.12After administrative costs, the company expects to earn $ 52 per share from a new issue.a) Determine the growth rate of dividends from 2015 to 2019. (g =?)arrow_forward
- Newman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $3.53 per share and paid cash dividends of $1.83 per share (D Subscript 0=$1.83). Grips' earnings and dividends are expected to grow at 40% per year for the next 3 years, after which they are expected to grow 9%per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of 11% on investments with risk characteristics similar to those of Grips? The maximum price per share that Newman should pay for Grips isarrow_forwardNewman Manufacturing is considering a cash purchase of the stock of Grips Tool. During the year just completed, Grips earned $2.50 per share and paid cash dividends of $0.80 per share (D0equals $ 0.80). Grips' earnings and dividends are expected to grow at 15%per year for the next 3 years, after which they are expected to grow 4% per year to infinity. What is the maximum price per share that Newman should pay for Grips if it has a required return of 8% on investments with risk characteristics similar to those of Grips? Can you please show me how to solve this and solve it in Excelarrow_forwardThe Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income inthe current year is $250,000. The company is planning to launch a project that will requires aninvestment of $175,000 next year. Currently the share of Giant machinery is $25/share.Required: How much dividend Giant Machinery can pay its shareholders this year and what is dividendpayout ratio of the company? Assume the Residual Dividend Payout Policy applies.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning
Financial leverage explained; Author: The Finance story teller;https://www.youtube.com/watch?v=GESzfA9odgE;License: Standard YouTube License, CC-BY