Bus 320 Connect Homework 8
Bus 320 Connect Homework 8
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1.
value:
1.00 points
Problem 17-1 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 18-21 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] |
| (e-1) | 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] |
| (e-2) | 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? | ||||
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34.
value:
4.00 points
Problem 18-22 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 |
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| 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 | ||||
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| 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] |
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