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Assume that you write a column for a very widely followed financial blog titled, “ Finance Questions: Ask the Expert.” Your job is to field readers’ questions that deal with finance. This week you are going to address two questions from your readers that have to do with dividends. Question 1: I own 8 percent of the Standlee Corporation’s 30,000 shares of common stock, which most recently traded for a price of $ 98 per share. The company has since declared its plans to engage in a two- for- one stock split. a. What will my financial position be after the stock split, compared to my current position? ( Hint: Assume the stock price falls proportionately.) b. The executive vice- president in charge of finance believes the price will not fall in proportion to the size of the split and will only fall 45 percent because she thinks the pre- split price is above the optimal price range. If she is correct, what will be my net gain from the split? Question 2: You are on the board of directors of the B. Phillips Corporation, and Phillips has announced its plan to pay dividends of $ 550,000. Presently there are 275,000 shares outstanding, and the earnings per share is $ 6. It looks to you like the stock should sell for $ 45 after the ex- dividend date. If instead of paying a dividend, the management decides to repurchase stock a. What should be the repurchase price that is equivalent to the proposed dividend? ( Hint: Ignore any tax effects.) b. How many shares should the company repurchase? c. You want to look out for the small shareholders. If someone owns 100 shares, do you think he would prefer that the company pay the dividend or repurchase stock?
Assume that the 3-month futures contract on SPX settled at 2070, r = 0.25%, q = 2.25%, arbitrage transactions costs (TC) involving these futures contract are 1.16 (index points). The TC band is [2060.84, 2058.52]. Therefore, the index (SPX) must have..
James Corporation has the following terms with its suppliers: 2/10, net 60. It normally takes the discount and pays within ten days. However, due to cash shortage, it intends to delay the payment. Find the cost of this short-term financing for James.
Suppose a stock had an initial price of $62 per share, paid a dividend of $1.10 per share during the year, and had an ending share price of $74. What was the dividend yield and the capital gains yield?
Given the vast resources available to mutual fund managers, these managers on average have generally:
If the after-tax present value of buying equipment and using it for six years is $125,000, calculate the break-even after-tax yearly lease payment (seven payments) using a 8% real discount rate. (Assume that lease payments are made at the beginning o..
You are considering a project which will provide annual cash inflows of $5,200, $6,300, and $7,500 at the end of each year for the next three years, respectively. What is the present value of these cash flows, given a 8% discount rate?
Factors that should be considered in taking a stock option position include: Advantages of investing in tax-exempt bond funds include all of the following EXCEPT: Preferred stock with cumulative fixed dividends
An oil company is drilling a series of new wells that are adjacent to an existing oil field. About 20% of the new wells will be dry holes and will produce zero oil. If the wells do, in fact, strike oil, they have different expected values. What is th..
KADS, Inc., has spent $470,000 on research to develop a new computer game. The firm is planning to spend $270,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $57..
A project is estimated to have a net present value equal to $85,000. The risk-adjusted opportunity cost of capital is 15 percent. Which of the following statements is most correct?
Assume you will start working as soon as you graduate from college. You plan to start saving for your retirement on your 25th birthday and retire on your 65th birthday. After retirement, you expect to live until you are at least 85. You wish to be ab..
Various trading strategies appear to offer non-zero alphas when we examine real world data. If indeed these alphas are positive, it could be explained by any of the following except:
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