officer (CFO) in mid-September 2005 needed to submit recommendation to Gainesboro’s board of directors regarding the company’s dividend policy. The Gainesboro’s stock also fallen 18%to $22.15 due to post impact of the Hurricane Katrina. Now‚ Ashley Swenson’s dividend decision problem was compounded by the dilemma of whether to use company funds to pay shareholder dividends or to buy back stock. Analysis >>Buy-back Stock Stock Price per share = $22.15 Net income in year 2005 = $18‚018‚000
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rate risk 3. Beta Budget Brooms will pay a big $2 dividend next year on its common stock‚ which is currently selling at $50 per share. What is the market’s required return on this investment if the dividend is expected to grow at 5% forever? Answer: 9% 4. If a coupon bond sells at a large discount from par‚ then which of the following relationships holds true? (P0 > represents the price of a bond and YTM is the bond’s yield to maturity.) Answer: P0 < par and YTM > the coupon
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Cycles 13 Study Session 11 – Assigned Reading #36 – Capital Budgeting 15 Study Session 11 – Assigned Reading #37 – Cost of Capital 19 Study Session 11 – Assigned Reading #38 – Measures of Leverage 22 Study Session 11 – Assigned Reading #39 – Dividends and Share Repurchases 25 Study Session 11 – Assigned Reading #40 – Working Capital Management 29 Study Session 11 – Assigned Reading #41 – Financial Statement Analysis 33 Study Session 11 – Assigned Reading #42 – The Corporate Governance of
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FIN254 Case Time Value of Money Fall-2012 1) Assume that your father is now 50 years old‚ that he plans to retire in 10 years‚ and that he expects to live for 25 years after he retires‚ that is‚ until he is 85. He wants a fixed retirement income that has the same purchasing power at the time he retires as $40‚000 has today (he realizes that the real value of his retirement income will decline year by year after he retires). His retirement income will begin the day he retires‚ 10 years from
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statements is correct? Answer One advantage of dividend reinvestment plans is that they enable investors to avoid paying taxes on the dividends they receive. If a company has an established clientele of investors who prefer a high dividend payout‚ and if management wants to keep stockholders happy‚ it should not follow the strict residual dividend policy. If a firm follows a strict residual dividend policy‚ then‚ holding all else constant‚ its dividend payout ratio will tend to rise whenever the firm’s
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1. Tom believes the company should use the extra cash to pay a special one-time dividend. How will this proposal affect the stock price? How will it affect the value of the company? Electronic Timing‚ Inc. (ETI) needs to be careful on how it dispenses the extra cash as a dividend. Issuing the extra cash as a dividend would mean that the shareholders collectively will probably drop by the same amount because of the transfer of wealth from the company to the shareholders individually. Hence‚ the
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share However‚ the infinite period dividend discount model (DDM) can be used to indicate the variables that should determine the value of the P/E ratio as follows: Po=Do1+gre-g=D1re-g If we divide both sides of the equation (earning per share)‚ the result is: PoEPSo=DoEPSo1+gke-g Thus earnings multiplier can be ultimately simplified as: PoEPSo=PayoutRatio1+gke-g This model implies that P/E ratio is determined by: * The expected dividend payout ratio (dividends divided by earnings) * The
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FI 410 Final Exam Study Guide Chapter 2 and 3: Investment risk- pertains to the probability of earning a return less than that expected. Standard deviation measures the stand-alone risk of an investment The larger the std deviation‚ the higher the probability that returns will be far below the expected return Two-Stock Portfolios: Can be combined to form a risklss portfolio if correlation (p)= -1.0 Risk is not reduced at all if the two stocks have correlation (p)= +1.0 In general‚ stocks have an
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Procter and James Gamble settled in the Queen City of the West‚ Cincinnati‚ and established themselves in business. As a result‚ a new company was born: Procter & Gamble. Procter & Gamble became into a listed company at a stock price and dividend which are $ 1.7 and $ 0.01 per month respectively in 19 Jan. 1970. For many years‚ P & G keep following their purpose and social responsibility at every and every corner in the world: “We will provide branded products and services of superior
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Chapter 22: Dividend Policy Multiple Choice Questions 1. When is the ex-dividend date if the holder of record date is April 14‚ 2006? A. April 15 B. April 16 C. April 12 D. April 13 Level of difficulty: Medium Solution: C Ex-dividend date is the second business date before the holder of record date. 2. Which of the following statements about M&M assumptions is false? A. There are no taxes. B. Not all firms maximize value. C. There is no debt. D. Markets are perfect. Level of difficulty:
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