Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Chapter 18, Problem 9P
In doing a five-year analysis of future dividends, the Dawson Corporation is considering the following two plans. The values represent dividends per share.
a. How much in total dividends per share will be paid under each plan over the five years?
b. Mr. Bright, the vice president of finance, suggests that stockholders often prefer a stable dividend policy to a highly variable one. He will assume that stockholders apply a lower discount rate to dividends that are stable. The discount rate to be used for Plan A is 11 percent; the discount rate for Plan B is 14 percent. Compute the
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In doing a five-year analysis of future dividends, the Dawson Corporation is considering the following two plans. The values represent dividends per share. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Year
Plan A
Plan B
1
$
1.80
$
0.50
2
1.80
2.20
3
1.80
0.20
4
2.10
4.00
5
2.10
1.40
a. How much in total dividends per share will be paid under each plan over five years? (Do not round intermediate calculations and round your answers to 2 decimal places.)
b-1. Mr. Bright, the Vice-President of Finance, suggests that stockholders often prefer a stable dividend policy to a highly variable one. He will assume that stockholders apply a lower discount rate to dividends that are stable. The discount rate to be used for Plan A is 10 percent; the discount rate for Plan B is 14 percent. Compute the present value of future dividends.…
Sarah just received a letter from a major stockholder. Thestock-holder asks about the company’s dividend policy. In fact,the stockholder has asked you to estimate the amount ofdividend that you are likely to pay next year. You have not yetcollected all the information about the expected dividendpayment but you know the following:
• The Company follows a residual dividend policy• The total capital budget for next year is likely to beone of three amounts, depending on the results ofcapital budgeting studies that are currently underway.The capital expenditure amounts are P2million,P3million and P4million.• The forecasted level of potential retained earningsnext year is P2million• The target or optimal capital structure is a debt ratio of40%.
Compute the amount of dividend (or the amount of newstock needed) and the dividend pay-out ratio for each of thethe three capital expenditure amounts.
Solve the question step-by-step with comprehensive explanation where required.
Chapter 18 Solutions
Foundations of Financial Management
Ch. 18 - Prob. 1DQCh. 18 - Prob. 2DQCh. 18 - Prob. 3DQCh. 18 - Prob. 4DQCh. 18 - Prob. 5DQCh. 18 - Prob. 6DQCh. 18 - Prob. 7DQCh. 18 - Prob. 8DQCh. 18 - Prob. 9DQCh. 18 - Prob. 10DQ
Ch. 18 - Prob. 11DQCh. 18 - Prob. 1PCh. 18 - Prob. 2PCh. 18 - Prob. 3PCh. 18 - Prob. 4PCh. 18 - Prob. 5PCh. 18 - Prob. 6PCh. 18 - Prob. 7PCh. 18 - Prob. 8PCh. 18 - In doing a five-year analysis of future dividends,...Ch. 18 - Prob. 10PCh. 18 - The shares of the Dyer Drilling Co. sell for $60 ....Ch. 18 - Prob. 12PCh. 18 - Prob. 13PCh. 18 - Phillips Rock and Mud is trying to determine the...Ch. 18 - Prob. 15PCh. 18 - Prob. 16PCh. 18 - Prob. 17PCh. 18 - Prob. 18PCh. 18 - Prob. 19PCh. 18 - Prob. 20PCh. 18 - Prob. 21PCh. 18 - Prob. 22PCh. 18 - Prob. 3WECh. 18 - Prob. 4WE
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY