a.
To calculate: The number of shares that would be outstanding after a stock split of two-for-one, and its par value.
Introduction:
Stock split:
A corporate procedure through which the management of a company divides its current shares to increase the shares outstanding is termed as stock split. It helps in boosting the liquidity of shares.
b.
To calculate: The number of shares that would be outstanding after a stock split of three-for-one, and its par value.
Introduction:
Stock split:
A corporate procedure through which the management of a company divides its current shares to increase the shares outstanding is termed as stock split. It helps in boosting the liquidity of shares.
c.
To calculate: The EPS of Wilson Pharmaceutical before stock split and after stock splits of 2-for-1 and 3-for-1, if the total earnings are $11 million.
Introduction:
Stock split:
A corporate procedure through which the management of a company divides its current shares to increase the shares outstanding is termed as stock split. It helps in boosting the liquidity of shares.
Earnings per share (EPS):
It is the profit earned by shareholders on each share. A higher EPS indicates a higher value of the company because investors are ready to pay a higher price for one share of the company.
d.
To calculate: The price per share of Wilson Pharmaceutical after a 2-for-1 split and a 3-for-1 split, assuming the P/E ratio to be 36.36.
Introduction:
Stock split:
A corporate procedure through which the management of a company divides its current shares to increase the shares outstanding is termed as stock split. It helps in boosting the liquidity of shares.
P/E ratio:
It is computed by dividing the current share price of a company by its EPS. It helps in valuing the present as well as future profitability of a company.
e.
To explain: Whether there will be a change in the P/E ratio of Wilson Pharmaceuticals because of the stock split.
Introduction:
Stock split:
A corporate procedure through which the management of a company divides its current shares to increase the shares outstanding is termed as stock split. It helps in boosting the liquidity of shares.
P/E ratio:
It is computed by dividing the current share price of a company by its EPS. It helps in valuing the present as well as future profitability of a company.
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Chapter 18 Solutions
Foundations of Financial Management
- The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The company’s stock currently trades at $60 per share. Compute the stock’s earnings per share (EPS). What is the stock’s P/E ratio? Determine what the stock’s dividend yield would be if it paid $1.75 per share to common stockholders.arrow_forwardThe following table shows your stock positions at the beginning of the year, the dividends that each stock paid during the year, and the stock prices at the end of the year. Company Johnson Controls Medtronic Direct TV Qualcomm Beginning of Year Shares Price Dividend Per Share 500 $ 73.41 $ 1.27 700 58.07 .51 900 25.44 500 43.58 .44 What is your portfolio dollar return and percentage return? Note: Round your answers to 2 decimal places. Dollar return Portfolio Return Percentage return % End of Year Price $ 86.17 54.01 24.89 39.42arrow_forward1. A stock has had the following year-end prices and dividends: Year Price ($) Dividend ($) 94.17 92.21 1.05 96.1 1.2 96.3 1.57 94.16 1.66 96.46 1.69 What is the geometric average return for the stock? Answer as a percentage to two decimals (if you get -0.0435, you should answer -4.35).arrow_forward
- Suppose a stock had an initial price of $35.19 per share, paid a dividend of $2.26 per share during the year, and had an ending share price of $33.6. Compute the percentage total return. Answer as a percentage to two decimals (if you get -O.0435, you should answer -4.35).arrow_forward1. A stock has had the following year-end prices and dividends: Dividend ($) Year 1 2 3 4 5 6 Price ($) 93.75 94.42 95.5 93.24 94.65 97.9 1.38 1.36 1.72 1.76 1.95 What is the geometric average return for the stock? Answer as a percentage to two decimals (if you get -0.0435, you should answer -4.35).arrow_forwardThe following table shows your stock positions at the beginning of the year, the dividends that each stock paid during the year, and the stock prices at the end of the year. Company Johnson Controls Medtronic Direct TV Qualcomm Shares 450 300 600 200 Portfolio Return Dollar return Percentage return Beginning of Year Price $73.01 57.67 25.04 43.18 Dividend Per Share $1.19 0.43 % 0.40 What is your portfolio dollar return and percentage return? (Round your answers to 2 decimal places.) End of Year Price $85.97 53.61 24.49 39.02arrow_forward
- The preferred stock of Axim Corp. is currently selling at $51.07. If the required rate of return is 11.7 percent, what is the dividend paid by this stock? (Round answer to 2 decimal places, e.g. 15.25.) Dividend paid $ ________arrow_forwardYou are currently investigating a stock with per share earnings of $1.73. The current price of the stock is $119.99. If the expected growth rate of the firm is 12%, what is the stock's PEG ratio? Answer with two decimals.arrow_forward(Related to Checkpoint 10.2) (Relative valuation of common stock) Using the PIE ratio approach to valuation, calculate the value of a share of stock under the following conditions: • the investor's required rate of return is 14 percent, • the expected level of earnings at the end of this year (E,) is $5, • the firm follows a policy of retaining 20 percent of its earnings, the return on equity (ROE) is 15 percent, and • similar shares of stock sell at multiples of 7.272 times earnings per share. Now show that you get the same answer using the discounted dividend model. a. The stock price using the P/E ratio valuation method is $. (Round to the nearest cent.)arrow_forward
- The following table shows your stock positions at the beginning of the year, the dividends that each stock paid during the year, and the stock prices at the end of the year. Company US Bank PepsiCo 305 Uniphase Duke Energy Shares 400 300 700 300 Dollar return Percentage return Portfolio Return Beginning of Year Price $45.40 60.98 20.78 28.40 Dividend Per Share $2.25 1.54 What is your portfolio dollar return and percentage return? (Round your answers to 2 decimal places.) % 1.45 End of Year Price $45.33 64.45 18.56 34,16arrow_forwardA stock has earned $3.54 per share before dividends. They have a DPR of 35%. Similar stocks have P/E ratios of 15.3. What is your expected price target if the company earns $3.97 per share next year?arrow_forwardThe following table shows your stock positions at the beginning of the year, the dividends that each stock paid during the year, and the stock prices at the end of the year. Company US Bank PepsiCo JDS Uniphase Duke Energy Dollar return Shares 900 800 1,700 800 Portfolio Return Percentage return Beginning of Year Price $44.30 59.88 19.68 27.85 What is your portfolio dollar return and percentage return? (Round your answers to 2 decimal places.) Dividend Per Share $2.14 1.32 % 1.34 End of Year Price $44.23 63.35 17.46 33.61arrow_forward
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