Reference no: EM132614117
Question - a. DARLINGTON Beauty has 125,000 shares of stock outstanding with a par value of $1 per share and a market value of $5 a share. The company has retained earnings of $76,500 and capital in excess of par value of $340,000. The company just announced a 1-for-5 reverse stock split.
(i) How many shares of stock will be outstanding after the split?
(ii) What will the par value per share be after the split?
(iii) What will the market value per share be after the split?
b. Quality Shippers announced that on May 1, 2020, that it will pay a dividend of $5.00 per share on June 15 to all holders on record as of May 31. The firm's stock price is currently at $70 per share. Assume that all investors are in the 33% tax bracket. Given that the ex-dividend date is May 29, what should happen to Quality's stock price on May 29?
c. You are comparing the dividend policies of three dividend-paying utilities. You have collected the following information on the ex-dividend behaviour of these firms.
|
|
NE Gas
|
SE Bell
|
Western Electric
|
|
Price Before
|
$50
|
$70
|
$100
|
|
Price After
|
$48
|
$67
|
$95
|
|
Dividends/Share
|
$4
|
$4
|
$5
|
If you were a tax-exempt investor, which company would you use to make "dividend arbitrage" profits? How would you go about doing so?