Solution-Increasing total annual dividend payments

Increasing total annual dividend payments

Assignment Help Finance Basics

Reference no: EM133073654

A firm with a 40% tax rate has $10 million of preferred shares outstanding (each share has a $100par value) that pay a dividend of 10 percent and are callable at a premium of 6 percent. Issuing and underwriting expenses of $700,000 would have to be incurred.

(a) Assume that current dividend rates have dropped to 8 percent. What would be the market price of a preferred share (if it were non-redeemable/non-callable/non-retractable)?

(b) To what level would the dividend rate (on comparable issues) have to drop in order to make refinancing attractive?

(c) Assume that dividend yields have dropped to 8 percent. How many years will it take for the company to recoup the initial refinancing costs?

(d) Assume that the company chooses to call the 10% issue and refinance (with new shares)at 8%. What is the maximum number of new preferred shares (each new share has a $100par value) the firm can issue without increasing total annual dividend payments from their current level (at 10%)?

Reference no: EM133073654

Questions Cloud

Focuses on changing learning environment : Focuses on the changing learning environment. Describe the future environment for adult learning.

Reduce the frozen period for production : For the second round we were mostly concerned with low production plan adherence and a high level of obsolete products. The obsoletes was likely caused by a lon

Understanding change-cause and effect relationship : Understanding Change, Cause and Effect Relationship, and the Idea of a system.

What is the price of the bond : Question - East Corp. issued 25-year bonds with par value $1,000 three years ago at a coupon rate of 6 percent. What is the price of the bond

Increasing total annual dividend payments : A firm with a 40% tax rate has $10 million of preferred shares outstanding (each share has a $100par value) that pay a dividend of 10 percent and are callable a

Discuss the accounting treatment for the investment property : Discuss the accounting treatment for the investment property for the year ended 31 December 2020 if Samsin Bhd has adopted the fair value mode

Control of investment decisions and assets : While many nations are committed to free trade, they tend to intervene in international trade to achieve political and economic objectives. Many countries are c

Investor place in assets a and b : Assume the CAPM is the correct asset pricing model, and the risk-free rate of return is 6% and the market portfolio has an expected return and a standard deviat

What is the expected return and sharpe ratio : The U.S. equity allocation is invested passively in the S&P 500Index. You expect these assets have the following characteristics:

User Account

All Pages

Increasing total annual dividend payments

Reference no: EM133073654

Reference no: EM133073654

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT