Reference no: EM131328155
Their planned capital budget for the upcoming year is $100.5 million. Their forecasted net income is $150.0 million. The firm has $50.0 million in short-term investments. The firm’s value of operations is $1,937.5 million. The firm carries $242.2 million in debt, and has no preferred stock. There are 100 million shares outstanding.
Outline the procedure for setting dividend policy. Include in your discussion: Signaling hypothesis, clientele effect, stock splits, stock dividends
Calculate, based on the existing capital structure of 87.5 percent equity, how much equity and debt must be raised to finance the planned capital budget.
a. Use the residual distribution approach to determine how much should be paid out as dividends to new shareholders.
b. What would be the new payout ratio, and what would be the dividend per share amount?
Using an Excel data table, show how the payout ratio and DPS would change if net income fell into a range of $90.0 million to $150.0 million. Use increments of 5 million for your analysis.
Calculate, based on the firm’s current value of operations, the intrinsic value of equity and the intrinsic price per share.
Assume now that the firm has distributed the dividends calculated in question 2.
a. What would be the new intrinsic value of the equity and the new intrinsic price per share?
b. What would be the new dividend per share?
Assume now the firm made the distribution in the form of a stock repurchase.
What would be the new intrinsic value of the equity?
How many shares remain outstanding after the repurchase?
What is the intrinsic price per share of stock after the repurchase?
Summarize your findings in a brief recommendation memorandum to Haakon and Per.
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The expected market rate of return is stable
: Security ABC has a beta of 1.1. The expected market rate of return is stable at 8% and the risk-free rate is 4%. If the realized rate of return is 12%, the alpha of the stock is __________
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Forecasted units in case sales are better than expected
: Cake is a product of the Chester Company. Chester's sales forecast for Cake is 1,215 in the Americas region. Chester wants to have an extra 10% on hand above their forecasted units in case sales are better than expected. Taking current inventory into..
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Bond indenture provisions would not benefit bondholders
: This bond indenture provisions would not benefit bondholders
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Company expects this equipment will lead to cash flows
: Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $814,322, $863,275, $937,250, $1,018,610, $1,212,960, and $1,225,000 over the next six years. If the appropriate disco..
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Calculate based on the existing capital structure
: Their planned capital budget for the upcoming year is $100.5 million. Their forecasted net income is $150.0 million. The firm has $50.0 million in short-term investments. The firm’s value of operations is $1,937.5 million. Calculate, based on the exi..
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What would be the new dividend per share
: Their planned capital budget for the upcoming year is $100.5 million. Their forecasted net income is $150.0 million. The firm has $50.0 million in short-term investments. What would be the new intrinsic value of the equity and the new intrinsic price..
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How much should be paid out as dividends to new shareholders
: Their planned capital budget for the upcoming year is $100.5 million. Their forecasted net income is $150.0 million. The firm has $50.0 million in short-term investments. The firm’s value of operations is $1,937.5 million. Use the residual distributi..
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Signaling hypothesis-clientele effect and stock splits
: Their planned capital budget for the upcoming year is $100.5 million. Their forecasted net income is $150.0 million. The firm has $50.0 million in short-term investments. The firm’s value of operations is $1,937.5 million. Outline the procedure for s..
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Which level of debt would the firm value be maximized
: EBIT was $55 million in 2016, and is expected to remain constant for 2017. The firm is all equity financed, and there are 15 million shares outstanding. The corporate tax rate is 37.5%, the risk-free rate is 3.5% and the market risk premium is 4%. Us..
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