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Dividend Policy [LO 2] The Quick Buck Company is an all-equity firm that has been in existence for the past three years. Company management expects that the company will last for two more years and then be dissolved. The firm will generate cash flows of $800,000 next year and $1,250,000 in two years, including the proceeds from the liquidation. There are 35,000 shares of stock outstanding and shareholders require a return of 13 percent.
Requirement 1: What is the current price per share of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Share price $ The Board of Directors is dissatisfied with the current dividend policy and proposes that a dividend of $910,000 be paid next year. To raise the cash necessary for the increased dividend, the company will sell new shares of stock.
Requirement 2: How many shares of stock must be sold? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Shares sold
Requirement 3: What is the new price per share of the existing shares of stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) New share price $
LaShon Vega is purchasing a $250,000 with a 20% down payment. Her lender offers her a 30-year fixed mortgage rate of 5.5% or an opportunity to pay two points to reduce that rate to 5.25%. What are her monthly mortgage payments under both options? Ass..
Assume a bank loan requires an interest payment of $85 a year and principal payment of $1,000 at the end of the loan date/year life. How much this loan could be sold for to another bank if the loans of similar quality care of a 8.5% interest rate tha..
Explain the distinction between the firm’s weighted average cost of capital (WACC) and its weighted marginal cost of capital (WMCC)? Are the calculations of the WACC and the WMCC different? Explain.
Explain the theory behind the concept of "required return" on proposed capital investments.
Pickard Company pays its sales staff a base salary of $4,500 a month plus a $3.00 commission for each product sold. If a salesperson sells 800 units of product in January, the employee would be paid:
Tulley Appliances, Inc. projects next year’s sales to be $20 million. Current sales are at $15 million, based on current assets of $5 million and fixed assets of $5 million. The firm’s net profit margin is 5 percent after taxes. Tulley forecasts that..
Camila plans to go for vacation to Australia in 11 years from now. She estimates that she will need $26,222 for the trip. How much does she need to place in a saving account today that earns 5.12 percent per year (compounded quarterly) to accumulate ..
Discounting. According to economic theory, agricultural land values (prices) equal the present value of expected future rents, where rents are calculated as the difference between revenue received and production costs. Houses. Suppose you have an off..
We have explored different capital structures. It is noted that initially, leverage can be the least expensive form of capital. However, if potential lenders feel a firm is overly leveraged, they may charge a punitive rate, or refuse to lend all toge..
Bourdon Software has 11.2 percent coupon bonds on the market with 20 years to maturity. The bonds make semiannual payments and currently sell for 108.4 percent of par. What is the current yield on the bonds? What is the effective annual yield?
Calculate the bank's DGAP if the ALCO targets the economic value of stockholders' equity. Is this bank positioned to gain or lose if interest rates rise? Provide a specific transaction that the bank could implement to immunize its interest rate risk...
The best of a group of independent projects competing for the firm’s fixed capital budget of $4.5 million. The firm recognizes that any unused portion of this budget will earn less than its 15% cost of capital, thereby resulting in a present value of..
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