
a.
To calculate: The current stock price of Carlton Corporation.
Introduction:
Stock price:
A stock price refers to the current price of a share of a company at which the stock is trading on. This price is determined on the basis of the supply and demand factors in the stock market.
a.

Answer to Problem 21P
The current stock price is $50.
Explanation of Solution
The current stock price is computed as follows:
b.
To calculate: The dividend per share if $4 million is used to pay the dividends.
Introduction:
Dividend:
The dividend is the sum of money which is paid regularly to the shareholders as a
b.

Answer to Problem 21P
If $4 million is used to pay the dividends, then the dividend per share is $2.
Explanation of Solution
The dividend per share can be calculated as follows, if $4 million is used to pay the dividend by the company:
c.
To calculate: The number of shares acquired if $4 million is used to repurchase shares in the market at a price of $54 per share.
Introduction:
Stock price:
A stock price refers to the current price of a share of a company at which the stock is trading on. This price is determined on the basis of the supply and demand factors in the stock market.
c.

Answer to Problem 21P
If $4 million is used to repurchase shares in the market at a price of $54 per share, then the number of shares acquired is 74,074.
Explanation of Solution
The number of acquired shares can be calculated, if an excess amount of $4 million is used for repurchasing shares at $54 per share.
d.
To calculate: New earnings per share.
Introduction:
Earnings per share (EPS):
It is the profit per outstanding share of a public company. A higher EPS indicates higher value of the company because investors are ready to pay higher price for one share of the company.Â
d.

Answer to Problem 21P
New EPS is $2.60.
Explanation of Solution
The new EPS can be calculated as follows:
e.
To calculate: The price of security, if P/E ratio remains constant and the stock price increases.
Introduction:
P/E ratio:
This is the ratio of a corporation’s share price to its EPS. This ratio is used to determine if the company is undervalued or overvalued.
e.

Answer to Problem 21P
The price of share is $52 and increase in the stock is $2.
Explanation of Solution
The calculation of the price of the shares is as follows:
The increase in the stock can be computed as follows:
f.
To calculate: The change in the wealth of the shareholders as a result of change in the stock price, as opposed to receiving the cash dividend.
Introduction:
Stock price:
A stock price refers to the current price of a share of a company at which the stock is trading on. This price is determined on the basis of the supply and demand factors in the stock market.
f.

Answer to Problem 21P
The wealth of the shareholder has changed due to the increased total value per share by $52.
Explanation of Solution
The calculation of the total value per share is as follows:
By repurchasing the stock, the total value per share is increased to $52, so the wealth of the shareholders has increased.
g.
To explain: The reasons of repurchase of shares by a corporation.
Introduction:
Repurchase of shares:
The repurchase of share is a transactional process in which a company repurchases its shares from the marketplace, due to the management’s consideration of being its shares being undervalued.
g.

Answer to Problem 21P
The reason for the repurchase of shares is considered by the company as being undervalued or underpriced. And, also the repurchase of share can be for the stock option plan for the employees of the company.Â
Explanation of Solution
The reason for repurchase is that the appreciation in value associated with a stock repurchase defers the
Another reason for the repurchase of shares is that the company considers its shares to be undervalued or underpriced, so repurchase will bring down the supply of shares and will increase the price of the share.
The company also repurchases its share to be used under the employee stock option plan and as a protective device.
Want to see more full solutions like this?
Chapter 18 Solutions
EBK FOUNDATIONS OF FINANCIAL MANAGEMENT
- Crenshaw, Incorporated, is considering the purchase of a $367,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $67,000 in five years. The computer will replace five office employees whose combined annual salaries are $112,000. The machine will also immediately lower the firm's required net working capital by $87,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 22 percent. The appropriate discount rate is 15 percent. Calculate the NPV of this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV Answer is complete but not entirely correct. S 103,141.80arrow_forwardYour firm is contemplating the purchase of a new $610,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $66,000 at the end of that time. You will save $240,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $81,000 (this is a one-time reduction). If the tax rate is 21 percent, what is the IRR for this project? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. IRR %arrow_forwardQUESTION 1 Examine the information provided below and answer the following question. (10 MARKS) The hockey stick model of start-up financing, illustrated by the diagram below, has received a lot of attention in the entrepreneurial finance literature (Cumming & Johan, 2013; Kaplan & Strömberg, 2014; Gompers & Lerner, 2020). The model is often used to describe the typical funding and growth trajectory of many startups. The model emphasizes three main stages, each of which reflects a different phase of growth, risk, and funding expectations. Entrepreneur, 3 F's Debt(banks & microfinance) Research Business angels/Angel Venture funds/Venture capitalists Merger, Acquisition Grants investors PO Public market Growth (revenue) Break even point Pide 1st round Expansion 2nd round 3rd round Research commercial idea Pre-seed Initial concept Seed Early Expansion Financial stage Late IPO Inception and prototype Figure 1. The hockey stick model of start-up financing (Lasrado & Lugmayr, 2013) REQUIRED:…arrow_forward
- critically discuss the hockey stick model of a start-up financing. In your response, explain the model and discibe its three main stages, highlighting the key characteristics of each stage in terms of growth, risk, and funding expectations.arrow_forwardSolve this problem please .arrow_forwardSolve this finance question.arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT

