You own 2,200 shares of Deltona Hardware. The company has stated that it plans on issuing a dividend of $0.42 a share at the end of this year and then issuing a final liquidating dividend of $2.90 a share at the end of next year. Your required rate of return on this security is 16 percent. Ignoring taxes, what is the value of one share of this stock to you today?
Value per share = ($0.42/1.161) + ($2.90/1.162) = $2.52
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59.
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Al owns 800 shares of The Good Life Co. The company recently issued a statement that it will pay a dividend per share of $0.55 this year and a $0.60 per share dividend next year. Al does not want any dividend income this year but does want as much dividend income as possible next year. Al earns 9 percent on his investments. Ignoring taxes, what will Al's total homemade dividend be next year?
Homemade dividend income for next year = [($0.55 × 1.09) + $0.60] × 800 = $959.60
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60.
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Jenningston Mills has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?
Price per share = $3,750/250 = $15
Number of shares repurchased = (0.25 × $1,200)/$15 = 20 shares New EPS = $420/(250 - 20) = $1.83 |
61.
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Blasco's has a market value equal to its book value. Currently, the firm has excess cash of $1,332, other assets of $11,674, and equity of $7,200. The firm has 1,200 shares of stock outstanding and net income of $838. Blasco's has decided to spend one-third of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?
Price per share = $7,200/1,200 = $6
Number of shares repurchased = [(1/3) × $1,332]/$6 = 74 New number of shares outstanding = 1,200 - 74 = 1,126 shares |
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