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Your portfolio is 360 shares of Barden, Inc. The stock currently sells for $106 per share.
The company has announced a dividend of $3.70 per share with an ex-dividend date of April 19.
 
Assuming no taxes, how much will your stock be worth on April 19?
(Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

 
106 – 3.70 x 360
Explanation:
$106.00 – 3.70
New stock price = 102.30
360 × 102.30 = 36,828 Bermuda Triangle Corporation (BTC) currently has 560,000 shares of stock outstanding that sell for $89 per share.
Assume no market imperfections or tax effects exist.
 
Determine the share price and new number of shares outstanding if:
(Do not round intermediate calculations. Round your price per share answers to 2 decimal places, e.g.,
32.16, and shares outstanding answers to the nearest whole number, e.g., 32.)
 
a. BTC has a five-for-three stock split.
b. BTC has a 11 percent stock dividend.
c. BTC has a 41.5 percent stock dividend.
d. BTC has a four-for-seven reverse stock split.
 

a. Price per share = 3/5*89 = 53.40 no. of shares outstanding = 5/3 x 560,000 = 933,333
b. price per share = 89/1.11 = 80.18 shares outstanding = 560,000 x 1.11 = 621,600
c. price per share = 62.90 shares outstanding = 792,400
d. price per share = 89 x 7/4 = 155.75    no. of shares = 320,000
Explanation:
$89(3/5) = $53.40
$89(1/1.11) = $80.18
$89(1/1.415) = $62.90
$89(7/4) = $155.75
To find the new shares outstanding, we multiply the current shares outstanding times the ratio of new shares to old shares, so:
560,000(5/3) = 933,333
560,000(1.11) = 621,600
560,000(1.415) = 792,400
560,000(4/7) = 320,000  
The balance sheet for Throwing Copper, Inc., is shown here in market value terms.
There are 27,000 shares of stock outstanding.
 

Market Value Balance Sheet
Cash	$	117,000
Fixed assets		489,960		Equity	$	606,960
Total	$	606,960		Total	$	606,960

 

P₀ = $606,960 equity / 27,000 shares
P₀ = $22.48 per share
 
Ignoring tax effects, the stock price will drop by the amount of the dividend, so:
 
P_X = $22.48 – 1.40
P_X = $21.08
 
The total dividends paid will be:
 
$1.40 per share(27,000 shares) = $37,800
 
The equity and cash accounts will both decline by $37,800.  
Hodgkiss Corporation is evaluating an extra dividend versus a share repurchase.
In either case, $34,320 would be spent. Current earnings are $3.40 per share, and the stock currently sells for $79 per share.
There are 5,200 shares outstanding. Ignore taxes and other imperfections.
 
What will the company’s EPS and PE ratio be under the two different scenarios?
(Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
 

	Extra Dividend	Share Repurchase
EPS	$	$
PE Ratio

 
Current EPS = $3.40 will be the EPS in extra dividend as dividends don't affect the EPS of a company.
P/E = 34320 / 5200 = 6.60
79 – 6.60 = 72.40 / 3.40 = 21.29411765 (21.29)
 
In the case of repurchase, no. of shares repurchased = 34,320 / 79 = 434 shares
EPS = Net Income / New Outstanding shares = 3.40 x 5,200 / (5,200 - 434) = $3.71 per share
P/E = 79 / 3.71 = 21.30
Explanation:
If the company makes a dividend payment, we can calculate the wealth of a shareholder as:
Dividend per share = $34,320 / 5,200 shares           Dividend per share = $6.60
The stock price after the dividend payment will be:
P_X = $79 – 6.60            P_X = $72.40 per share
The shareholder will have a stock worth $72.40 and a $6.60 dividend for a total wealth of $79.
If the company makes a repurchase, the company will repurchase:
Shares repurchased = $34,320 / $79             Shares repurchased = 434.43 shares
If the shareholder lets their shares be repurchased, they will have $79 in cash.
If the shareholder keeps their shares, they’re still worth $79.
If the company pays dividends, the current EPS is $3.40, and the PE ratio is:
PE = $72.40 / $3.40    PE = 21.29
If the company repurchases stock, the number of shares will decrease.
The total net income is the EPS times the current number of shares outstanding.
Dividing net income by the new number of shares outstanding, we find the EPS under the repurchase is:
EPS = $3.40(5,200) / (5,200 – 434.43)                        EPS = $3.71
The stock price will remain at $79 per share, so the PE ratio is:
PE = $79 / $3.71          PE = 21.29
A share repurchase would seem to be the preferred course of action.
Only those shareholders who wish to sell will do so,
giving the shareholder a tax timing option that he or she doesn’t get with a dividend payment.
   
The Gecko Company and the Gordon Company are two firms whose business risk is the same but that have different dividend policies.
Gecko pays no dividend, whereas Gordon has an expected dividend yield of 6 percent. Suppose the capital gains tax rate is zero,
whereas the income tax rate is 40 percent. Gecko has an expected earnings growth rate of 10 percent annually,
and its stock price is expected to grow at this same rate.
 
If the aftertax expected returns on the two stocks are equal (because they are in the same risk class),
what is the pretax required return on Gordon’s stock?
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)


 

10 – 6 (1 - .4) + 6 = 12.40
Explanation:
Assuming no capital gains tax, the aftertax return for the Gordon Company is the capital gains growth rate,
plus the dividend yield times one minus the tax rate. Using the constant growth dividend model, we get:
Aftertax return = g + D(1 – T) = .10
 
Solving for g, we get:
.10 = g + .06(1 – .40)
g = .0640, or 6.40%
 
The equivalent pretax return for the Gordon Company, which pays a dividend, is:
Pretax return = g + D 
Pretax return = .0640 + .06
Pretax return = .1240, or 12.40%
   
Flemington Farms is evaluating an extra dividend versus a share repurchase. In either case, $10,000 would be spent.
Current earnings are $2.10 per share, and the stock currently sells for $52 per share. There are 2,000 shares outstanding.
Ignore taxes and other imperfections.
The PE ratio will be ____ if the firm issues the dividend as compared to ____ if the firm does the share repurchase.
 
20.23; 24.87
22.38; 20.23
20.23; 22.38
24.87; 22.38
22.38; 22.38
 
10,000 / 2,000 shares = 5
52 - 5 = 47
47 / 2.10 = 22.38
 
10,000 / 52 = 192
2.10 x 2,000 / (2,000 - 192) = 2.324
52 / 2.324 = 22.38
   
The common stock of White's Hardware closed at $36.80 a share today. Tomorrow morning, the stock goes ex-dividend.
The dividend that is being paid this quarter is $1.40 a share. The tax rate on dividends is 25 percent.
All else equal, what should the opening stock price be tomorrow morning?
 
$35.75
 
Ex-dividend price = $36.80 - ($1.40)(1 - 0.25) = $35.75.
   
James Fabricators just liquidated its poorest performing division and realized net proceeds from the transaction of
$2.2 million. The firm has 200,000 shares of stock outstanding at a market price of $62 a share.
Which one of the following is the best estimate of the stock's post-dividend price per share if the firm distributes the entire
liquidation proceeds in the form of a liquidating dividend?
Ignore taxes and market imperfections.
 
Post-dividend price per share
$62 - ($2.2m/200,000) = $51.00.
  The common stock of Gallaghan's closed at $36.80 a share today. Tomorrow morning, the stock goes
ex-dividend. The dividend that is being paid this quarter is $1.40 a share. The tax rate on dividends is 15 percent.
All else equal, what should the opening stock price be tomorrow morning?


A. $35.19
B. $35.40
C. $35.52
D. $35.61
E. $35.70
D. $35.61
   
Westover Electric is preparing to pay its quarterly dividend of $2.20 a share this quarter.
The stock closed at $57.70 a share today. What will the ex-dividend stock price be if the relevant tax rate is
10 percent and all else is held constant?


A. $55.28
B. $55.50
C. $55.72
D. $55.94
E. $55.99
   
The common stock of Patee International goes ex-dividend tomorrow. The stock closed at a price
of $33.60 a share today. This quarter, the company is paying a cash dividend of $0.24 a share and a liquidating
dividend of $0.60 a share. Ignoring taxes and assuming that all else is held constant, what
will the ex-dividend price be tomorrow morning?


A. $32.76
B. $33.00
C. $33.36
D. $33.96
E. $34.23
   
Harris Brothers just announced it will be paying an annual dividend of $0.85 a share plus an extra dividend of $0.30
a share this year. The company also announced that its regular dividend, which is all it anticipates paying after this year,
will increase by 3.5 percent annually. What is the anticipated dividend per share next year?


A. $0.82
B. $0.85
C. $0.88
D. $1.15
E. $1.19
   
Keyser Trucking just paid its annual regular cash dividend of $1.22 a share, along with a special dividend of $0.25
a share. The company follows a policy of increasing its dividend by 2 percent annually.
Which one of the following is the best estimate of the firm's next annual dividend payment?


A. $1.22
B. $1.24
C. $1.49
D. $1.50
E. $1.54
   
Global Traders has common stock outstanding at a market price of $53 per share.
The total market value of the firm is $6,603,800. The firm plans on liquidating one of its divisions for $548,000
in cash and distributing the proceeds to the shareholders in the form of a liquidating dividend.
What will be the amount per share of that dividend?


A. $4.197
B. $4.398
C. $4.620
D. $4.714
E. $4.782
   
Southern Foods recently liquidated its fast food division. That unit represented 20 percent of the firm's overall
market value. Prior to the liquidation, the firm's stock was selling for $43 a share, the annual dividend was steady
at $1.20 per share, and there were 16,000 shares outstanding. The firm is preparing to distribute the entire
liquidation proceeds to shareholders. How much will the liquidating dividend be per share?


A. $0.24
B. $0.36
C. $6.10
D. $7.40
E. $8.60
   
Neal Fabricators just liquidated its poorest performing division and realized net proceeds from the transaction
of $2.6 million. The firm has 180,000 shares of stock outstanding at a market price of $64 a share. Which one
of the following is the best estimate of the stock's post-dividend price per share if the firm distributes the
entire liquidation proceeds in the form of a liquidating dividend? Ignore taxes and market imperfections.


A. $49.56
B. $51.38
C. $53.40
D. $58.79
E. $64.00
   
Haywood and More have a market value balance sheet as shown below. The firm currently has 5,000 shares
of stock outstanding at a market price per share of $35.40. Net income is $9,500. The firm has decided to
spend $8,000 and pay an extra cash dividend. What will the firm's PE ratio be after this dividend is paid,
all else held constant? Ignore taxes.


A. 14.20
B. 16.67
C. 18.63
D. 21.22
E. 24.50
   
Lester's has a market value balance sheet as shown below. The firm currently has 7,500 shares of stock
outstanding at a price per share of $40. Net income is $9,500. The firm has decided to repurchase $20,000
worth of its outstanding stock. What will the firm's PE ratio be after this repurchase, all else held constant?


A. 23.39
B. 28.76
C. 29.47
D. 30.13
E. 32.16
   
Zacariah's Nursery has 6,000 shares of stock outstanding at a market price of $20 a share. The earnings
per share are $1.54. The firm has total assets of $315,000 and total liabilities of $186,000. Today, the
firm is paying an annual cash dividend of $0.80 a share. Ignore taxes.
What will the earnings per share be after the dividend is paid?


A. $0.31
B. $0.74
C. $1.54
D. $20.70
E. $21.02
   
Aaron's Nursery has 6,000 shares of stock outstanding at a market price of $20 a share.
The earnings per share are $1.54. The firm has total assets of $315,000 and total liabilities of $186,000. Today, the firm
is repurchasing $4,800 worth of stock. Ignore taxes. What will the earnings per share be after the stock repurchase?


A. $1.283
B. $1.232
C. $1.540
D. $1.604
E. $1.848
   
Dorchester, Inc. has 7,500 shares of stock outstanding at a market price of $42 each and earnings per share of
$1.80. The firm has decided to repurchase $63,000 worth of stock.
What will the PE ratio be after the repurchase, all else held constant?


A. $1.30
B. $1.44
C. $1.80
D. $2.02
E. $2.25
   
Gloria's Boutique has 4,000 shares of stock outstanding at a price per share of $19. What will the price
per share be if the firm pays a $1.20 per share dividend? Ignore taxes and market imperfections.


A. $17.80
B. $18.40
C. $18.80
D. $19.00
E. $20.20
   
Gloria's Boutique has 4,000 shares of stock outstanding at a price per share of $19. The firm has decided
to repurchase 500 of those shares in the open market. What will the price per share be after the share
repurchase is completed? Ignore taxes and market imperfections.


A. $17.80
B. $18.40
C. $18.80
D. $19.00
E. $20.20
   
Cookies and More has 8,000 shares of stock outstanding at a market price of $13.60 per share.
What will the price per share be after the firm declares a 10 percent stock dividend? Ignore taxes
and market imperfections.


A. $12.24
B. $12.36
C. $13.60
D. $14.96
E. $15.00
   
Martha's Baked Goods has 15,000 shares of stock outstanding at a market price of $24.10 per share.
What will the price per share be after the firm declares a 5 percent stock dividend? Ignore taxes and
market imperfections.


A. $22.90
B. $22.95
C. $24.10
D. $25.31
E. $25.40
   
Heidi owns 400 shares of Boyd Enterprises stock, which is valued at $17 a share. Boyd Enterprises just
declared a 10 percent stock dividend. How many shares will Heidi own and what will the price per
share be after the dividend?


A. 360; $15.45
B. 360; $18.70
C. 440; $15.45
D. 440; $17.00
E. 440; $18.70
 
   
Plato United has 17,000 shares of stock outstanding at a price per share of $33. How many shares
will be outstanding if the firm does a 5-for-4 stock split?


A. 13,600 shares
B. 15,800 shares
C. 17,000 shares
D. 19,600 shares
E. 21,250 shares
   
Mueller Brothers has 38,000 shares of stock outstanding at a price per share of $59.
How many shares will be outstanding if the firm does a 3-for-2 stock split?


A. 24,000 shares
B. 25,333 shares
C. 55,667 shares
D. 57,000 shares
E. 61,000 shares
   
Lester's Meat Market has 7,000 shares of stock outstanding at a price per share of $11.
What will the price per share be if the firm declares a 3-for-5 reverse stock split?


A. $6.60
B. $7.50
C. $11.00
D. $15.00
E. $18.33
   
Theodore's has common stock outstanding at a price of $26 a share. The total market value
of the equity is $429,000. How many shares of stock will be outstanding if the firm does a 2-for-5 reverse stock split?

A. 41,250 shares
B. 36,000 shares
C. 6,600 shares
D. 7,500 shares
E. 16,500 shares
   
Jerri currently owns 200 shares of Alpha stock. Each share is currently worth $36.
What will Jerri's investment in Alpha be worth if the company declares a 4-for-3 stock dividend?


A. $5,400
B. $7,200
C. $9,000
D. $21,600
E. $28,800
   
Taylor's, Inc. stock has plummeted in value and is currently priced at $4 a share.
The exchange on which the stock trades requires that the minimum stock price be $10 a share.
Taylor's has decided to do a reverse stock split to avoid delisting. However, when it does this,
the firm wants the stock price increased to at least twice the minimum exchange required price.
Which one of the following stock split ratios is most appropriate for this situation?


A. 1-for-3
B. 1-for-5
C. 2-for-9
D. 3-for-1
E. 5-for-1
   
Stellar Technologies has 48,000 shares of stock outstanding at a market price of $6 a share.
Which one of the following stock splits should the firm declare if it wants to increase the stock
price to exactly $20 a share? Ignore any taxes or market imperfections.


A. 10-for-3 stock split
B. 3-for-1 stock split
C. 1-for-3-reverse stock split
D. 2-for-7 reverse stock split
E. 3-for-10 reverse stock split
   
Kaylor's Tool Shoppe has 16,000 shares of stock outstanding at a market price of $2 a share.
Which one of the following stock splits should the firm declare if it wants to increase the stock price
to exactly $15 a share? Ignore any taxes or market imperfections.


A. 15-for-2 stock split
B. 8-for-1 stock split
C. 1-for-7-reverse stock split
D. 2-for-15 reverse stock split
E. 1-for-8 reverse stock split
   
Your portfolio is 240 shares of Rising Sun Co. The stock currently sells for $62 a share.
The company has announced a dividend of $1.10 per share with an ex-dividend date of May 6.
Assume there are no taxes. What will your portfolio value be on May 7?


A. $14,616
B. $14,880
C. $15,026
D. $15,144
E. $15,210
   
Tattler, Inc. has declared a $4.60 per share dividend. Suppose capital gains are not taxed, but
dividends are taxed at 20 percent. New IRS regulations require that taxes be withheld at the time the
dividend is paid. Tattler sells for $87 per share, and the stock is about to go ex-dividend.
What do you think the ex- dividend price will be?

A. $82.40
B. $83.32
C. $85.08
D. $86.67
E. $87.00
   
LOG, Inc. currently has 300,000 shares of stock outstanding that sell for $73 per share. Assuming no market
imperfections or tax effects exist, what will the share price be after LOG has a five-for-three stock split?

A. $43.80
B. $45.60
C. $73.00
D. $109.18
E. $121.67
   
The balance sheet for Quik Treats, Inc. is shown here in market value terms. There are 20,000 shares of stock outstanding.
The company has declared a dividend of $1.40 per share. The stock goes ex-dividend tomorrow. Ignore any tax effects.
What will the firm's equity value be after the dividend is paid?

A. $572,000
B. $587,000
C. $603,000
D. $615,000
E. $643,000
   
The balance sheet for Oasis, Inc. is shown here in market value terms. There are 30,000 shares of stock outstanding.
The company has announced it is going to repurchase $40,000 worth of stock.  
What will the price per share be after the repurchase?

A. $36.29
B. $38.17
C. $38.67
D. $39.42
E. $39.89
   
Flemington Farms is evaluating an extra dividend versus a share repurchase. In either case, $15,000 would be spent.
Current earnings are $2.80 per share, and the stock currently sells for $75 per share.
There are 2,800 shares outstanding. Ignore taxes and other imperfections.
The PE ratio will be if the firm issues the dividend as compared to if the firm does the share repurchase.

A. 24.87; 24.87
B. 24.87; 26.79
C. 26.79; 24.87
D. 26.79; 26.79
E. 26.79; 27.13