Bus 320 Connect Homework 8
Bus 320 Connect Homework 8
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1.
value:
1.00 points
Problem 171 Residual claims to earnings [LO1]
Diploma Mills has $33 million in earnings, pays $4.30 million in interest to bondholders, and $2.65 million in dividends to preferred stockholders. 
(a)  What are the common stockholders’ residual claims to earnings? (Enter your answer in millions of dollars rounded to 2 decimal places. Omit the “$” sign in your response.) 
Residual claims to earnings  $ $ [removed] 
33.
value:
4.00 points
Problem 1821 Cash dividend versus stock repurchase [LO5]
The Carlton Corporation has $4 million in earnings after taxes and 1 million shares outstanding. The stock trades at a P/E ratio of 10. The firm has $1 million in excess cash. 
(a)  Compute the current price of the stock. (Omit the “$” sign in your response.) 
Current price  $ [removed] 
(b)  If the $1 million is used to pay dividends, how much will dividends per share be? (Round your answer to 2 decimal places. Omit the “$” sign in your response.) 
Dividends per share  $ [removed] 
(c)  If the $1 million is used to repurchase shares in the market at a price of $41.00 per share, how many shares will be acquired? (Round your answer to the nearest whole number.) 
Number of shares acquired  [removed] 
(d)  What will the new earnings per share be? (Round your intermediate calculations to the nearest whole number and final answer to 2 decimal places. Omit the “$” sign in your response.) 
Earning per share  $ [removed] 
(e1)  If the P/E ratio remains constant, what will the price of the securities be? (Round your intermediate calculations and final answer to 2 decimal places. Omit the “$” sign in your response.) 
Price of securities  $ [removed] 
(e2)  By how much, in terms of dollars, did the repurchase increase the stock price? (Round your intermediate calculations and final answer to 2 decimal places. Omit the “$” sign in your response.) 
Stock price increase / decrease  $ [removed] 
(f)  Has the stockholders’ total wealth changed as a result of the stock repurchase as opposed to receiving the cash dividends?  

34.
value:
4.00 points
Problem 1822 Retaining funds versus paying them out [LO1]
The Hastings Sugar Corporation has the following pattern of net income each year, and associated capital expenditure projects. The firm can earn a higher return on the projects than the stockholders could earn if the funds were paid out in the form of dividends. 
Year  Net income  Profitable capital expenditure 

1  $  15 million  $  8 million  
2  25 million  12 million  
3  9 million  7 million  
4  12 million  7 million  
5  16 million  8 million  

The Hastings Corporation has 2 million shares outstanding (the following questions are separate from each other). 
(a)  If the marginal principle of retained earnings is applied, how much in total cash dividends will be paid over the five years? (Enter your answer in millions. Omit the “$” sign in your response.) 
Total cash dividends  $ [removed] million 
(b)  If the firm simply uses a payout ratio of 20 percent of net income, how much in total cash dividends will be paid? (Enter your answer in millions rounded to 1 decimal place. Omit the “$” sign in your response.) 
Total cash dividends  $ [removed] million 
(c)  If the firm pays 10 percent stock dividends in years 2 through 5, and also pays a cash dividend of $2.40 per share for each of the five years, how much in total dividends will be paid? (Assume cash dividend is paid after the stock dividend.) (Omit the “$” sign in your response.) 
Total cash dividends  $ [removed] 
(d)  Assume the payout ratio in each year is to be 20 percent of net income and the firm will pay 10 percent stock dividends in years 2 through 5; how much will dividends per share for each year be? (Assume cash dividend is paid after the stock dividend.) (Round your answers to 2 decimal places. Omit the “$” sign in your response.) 
Year  Dividends per share 
1  $ [removed] 
2  [removed] 
3  [removed] 
4  [removed] 
5  [removed] 
