1) Dividend payment Personal Finance Problem Kathy Snow
wishes to purchase shares of Countdown? Computing, Inc. The? company’s board of directors has
declared a cash dividend of ?$0.44 to be paid to holders of record on?
Wednesday, Sep. 21.
a. What day does this
stock begin trading ex? dividend?
b. What is the last
day that Kathy can purchase the stock? (trade date) and still receive the?
dividend?
c. What? change, if? any, would you expect in the price per
share when the stock begins trading on the? ex-dividend day?
d. If Kathy held the stock for less than one quarter and
then sold it for ?$52.99 per? share, would she achieve a higher investment
return by? (1) buying the stock prior to the? ex-dividend date at? $ per share
and collecting the ?$ 0.44 ?dividend, or? (2) buying it on the? ex-dividend
date at ?$48.55 per share but not receiving the? dividend?
a. What day does this
stock begin trading ex? dividend????(Select the best answer? below.)
A. ?Sunday, Sep. 18
B. ?Monday, Sep. 19
C. ?Wednesday, Sep. 21
D. ?Friday, Sep. 16
b. What is the last
day that Kathy can purchase the stock? (trade date) and still receive the?
dividend????(Select the best answer? below.)
A. ?Sunday, Sep. 18
B. ?Friday, Sep. 16
C. ?Monday, Sep. 19
D. ?Wednesday, Sep. 21
c. What? change, if? any, would you expect in the price per
share when the stock begins trading on the? ex-dividend day????(Select the best
answer? below.)
A. Stock price will not change.
B. Stock price will drop by the amount of the dividend
?($0.44?).
C. Stock price will rise by the amount of the dividend
?($0.44?).
d. If Kathy held the stock for less than one quarter and
then sold it for ?52.99 per? share, would she achieve a higher ? after-tax
investment return? by:
?(1) buying the stock prior to the? ex-dividend date at
?$48.99 per share and collecting the ?$0.44 ?dividend, or
?(2) buying it on the? ex-dividend date at ?$48.55 per share
but not receiving the? dividend????(Select the best answer? below.)
A.
She would be better off buying the stock at
?$48.99 and taking the dividend.
B.
She would be better off buying the stock at
?$48.55 and not taking the dividend.
2) Chancellor Industries has retained earnings available of
?$1.17 million. The firm plans to make
two investments that require financing of ?$938,289 and ?$1.61 ?million,
respectively. Chancellor uses a target
capital structure with 65?% debt and 35?% equity. Apply the residual theory to determine what?
dividends, if? any, can be paid? out, and calculate the resulting dividend
payout ratio.
The dividend? amount, if? any, that can be paid out is
?$__________. ?(Round to the nearest?
dollar.)
The resulting dividend payout ratio is ______?%. ?(Round to one decimal? place.)
3) Dividend constraints The Howe? Company’s stockholders’
equity account is as? follows: The earnings available for common stockholders
from this? period’s operations are? $100,000, which have been included as part
of the ?$2.2 million retained earnings.
Common stock 500,000 shares at ?$7?par) ?$3,500,000
?Paid-in capital in excess of par 5,000,000
Retained earnings
2,200,000
Total? stockholders’ equity $10,700,000
a. What is the
maximum dividend per share that the firm can? pay? ? (Assume that legal capital
includes all? paid-in capital.)
b. If the firm has ?$120,000 in? cash, what is the largest?
per-share dividend it can pay without? borrowing?
c. Indicate the
accounts and? changes, if? any, that will result if the firm pays the dividends
indicated in parts a and b.
d. Indicate the
effects of an ?$80,000 cash dividend on? stockholders’ equity.
a. The maximum
dividend per share that the firm can is ?$_______. ? (Round to the nearest?
cent.)
b. If the firm has ?$120,000 in? cash, the largest?
per-share dividend it can pay without borrowing is ?$__________. ? (Round to
the nearest? cent.)
c. If the firm pays
the dividends indicated in part a?, cash will decrease by ?$________. ?(Round to the nearest? dollar.)
If the firm pays the dividends indicated in part a?, retained
earnings will decrease by ?$__________.
?(Round to the nearest? dollar.)
If the firm pays the dividends indicated in part b?, cash will
decrease by ?$______-. ?(Round to the
nearest? dollar.)
If the firm pays the dividends indicated in part b?, retained
earnings will decrease by ?$__________-.
?(Round to the nearest? dollar.)
d. An ?$80,000 cash dividend will cause retained earnings will
decrease by ?$_______. ? (Round to the nearest? dollar.)
?Stockholders’ equity will decrease by ?$80,000 to
?$_________. ?(Round to the nearest?
dollar.)
4) Alternative dividend policies Over the last 10? years, a
firm has had the earnings per share shown in the following? table:
|
Year |
Earnings per share |
Year |
Earnings per share |
|||
|
2015 |
?$4.07 |
2010 |
?$2.14 |
|||
|
2014 |
?$3.18 |
2009 |
?$1.51 |
|||
|
2013 |
?$3.82 |
2008 |
?$1.83 |
|||
|
2012 |
?$2.65 |
2007 |
?? ?$0.91 |
|||
|
2011 |
?$4.41 |
2006 |
?$0.48 |
a. If the? firm’s dividend policy were based on a constant
payout ratio of? 40% for all years with positive earnings and? 0% otherwise,
what would be the annual dividend for 2012??
b. If the firm had a dividend payout of? $1.00 per? share,
increasing by? $0.10 per share whenever the dividend payout fell below? 50% for
two consecutive? years, what annual dividend would the firm pay in 2012??
c. If the? firm’s policy were to pay? $0.50 per share each
period except when earnings per share exceed? $3.00, when an extra dividend
equal to? 80% of earnings beyond? $3.00 would be? paid, what annual dividend
would the firm pay in 2012??
d. Discuss the pros and cons of each dividend policy
described in parts a through c.
a. If the? firm’s dividend policy were based on a constant
payout ratio of? 40% for all years with positive earnings and? 0% otherwise,
the annual dividend for 2012 is ?$_____.???(Round to the nearest? cent.)
b. If the firm had a dividend payout of? $1.00 per? share,
increasing by? $0.10 per share whenever the dividend payout fell below? 50% for
two consecutive? years, the annual dividend the firm would pay in 2012 is ?$_____.???(Round
to the nearest? cent.)
c. If the? firm’s policy were to pay? $0.50 per share each
period except when earnings per share exceed? $3.00, when an extra dividend
equal to? 80% of earnings beyond? $3.00 would be? paid, the annual dividend the firm would pay in
2012 is $_______.???(Round to the nearest? cent.)
d. Which policy uses a? constant-payout ratio which will
yield low or no dividends if earnings decline or a loss? occurs????(Select the
best answer? below.)
A. The policy described in part b.
B. The policy described in part c.
C. The policy described in part a.
Which policy uses a? low-regular-and-extra dividend policy
giving investors a stable? income????(Select the best answer? below.)
A.
The policy described in part c.
B. The policy described in part b.
C. The policy described in part a.
5) Stock repurchase???The following financial data on the
Bond Recording Company are? available
|
Earnings available for common stockholders |
?$700,000 |
|
|
Number of shares of common stock outstanding |
350,000 |
|
|
Earnings per share ?($700,000divided by÷350,000?) |
?$2 |
|
|
Market price per share |
?$28 |
|
|
?Price/earnings (P/E) ratio ?($2828divided by÷?$22?) |
14 |
The firm is currently
considering whether it should use ?$350,000 of its earnings to help pay cash
dividends of ?$1.00 per share or to repurchase stock at ?$29 per share.
a. Approximately how
many shares of stock can the firm repurchase at the ?$29?-per-share ?price,
using the funds that would have gone to pay the cash? dividend?
b. Calculate the EPS after the repurchase.
c. If the stock still
sells at 14 times? earnings, what will the market price be after the?
repurchase?
d. Compare the? pre-
and? post-repurchase earnings per share.
e. Compare and contrast the? stockholders’ positions under
the dividend and repurchase alternatives.
What are the tax implications under each? alternative?
a. The number of shares Bond can repurchase is _______.???(Round
down to the nearest whole? number.)
b. The EPS after the repurchase is ?$______. ?(Round to the nearest? cent.)
c. If the stock still sells at 14 times? earnings, the
market price after the repurchase is ?$______.???(Round to the nearest? cent.)
d Compare the? pre- and? post-repurchase earnings per
share. The stock repurchase
_______ the? firm’s
earnings per share.???(Select from the? drop-down menu.)
e. Which of the following statements is? false????(Select
the best answer? below.)
A. Most stockholders would prefer a cash dividend due to the
lower tax rate on dividend income than on capital gain from repurchase.
B. The? post-repurchase price is higher because there are
fewer shares outstanding.
C. The? post-repurchase price is higher than the?
pre-repurchase price by the amount of the cash dividend.
D. Cash dividends are taxable to the stockholder. If the firm repurchases? stock, taxes on the
increased value of the stock are deferred until the stock is sold.
6) Changing cash conversion cycle???Camp Manufacturing turns
over its inventory 5 times each? year, has an average payment period of 40
?days, and has an average collection period of 67 days. The firm has annual sales of ?$3.9 million
and cost of goods sold of ?$2.1 million.???(Use a? 365-day year.)
a. Calculate the? firm’s operating cycle and cash conversion
cycle.
b. What is the dollar value of inventory held by the? firm?
c. If the firm could reduce the average age of its inventory
from 73 days to 63 ?days, by how much would it reduce its dollar investment in
working? capital?
a. Camp’s operating? cycle, OC, is _____ days.???(Round to
the nearest whole? number.)
?Camp’s cash conversion? cycle, ?CCC, is _____
days.???(Round to the nearest whole? number.)
b. The dollar value of inventory held by the firm is
?$_____.???(Round to the nearest? dollar.)
c. If the firm could reduce the average age of its inventory
from 73 days to 63 ?days, it would reduce its dollar investment in working
capital by ?$_______. ? (Round to the nearest? dollar.)
7) EOQ analysis Tiger Corporation purchases 1,250,000 units
per year of one component. The fixed
cost per order is ?$23. The annual
carrying cost of the item is 26.3?% of its ?$1.58 cost.
a. Determine the EOQ
if? (1) the conditions stated above? hold, (2) the order cost is zero rather
than ?$23?, and? (3) the order cost is ?$23 but the carrying cost is ?$0.01.
b. What do your answers illustrate about the EOQ?
model? Explain.
a. ? (1) If there are
no changes in the? costs, the EOQ is ______ units.???(Round to the nearest
integer. For? infinity, input? INF)
?(2) If the fixed
cost per order is? $0, the EOQ is ___ units.???(Round to the nearest
integer. For? infinity, input? INF)
?(3) If the annual
carrying cost of the item is ?$0.01?, the EOQ is ______ units.???(Round to the
nearest integer. For? infinity, input?
INF)
b. Is the following statement about the EOQ model true or?
false??. ?(Select from the? drop-down
menu.)
?”The EOQ model is not useful when ordering costs are
zero. As shown in part a?, when the
fixed cost per order is zero the model is not realistic. With zero ordering costs the firm is shown to
never place an? order.”
8) Relaxation of credit standards Lewis Enterprises is
considering relaxing its credit standards to increase its currently sagging
sales. As a result of the proposed?
relaxation, sales are expected to increase by 5?% from 13,000 to 13,650 units
during the coming? year; the average collection period is expected to increase
from 30 to 40 ?days; and bad debts are expected to increase from 2.5?% to 4.5?%
of sales. The sale price per unit is $36?,
and the variable cost per unit is $28.
The? firm’s required return on? equal-risk investments is 25.1?%. Evaluate the proposed? relaxation, and make a
recommendation to the firm.???(?Note: Assume a? 365-day year.)
The additional profit contribution from an increase in sales
is ?$_______. ?(Round to the nearest?
dollar.)
The cost from the increased marginal investment in? A/R is
?$______. ?(Round to the nearest?
dollar.)
The cost from the increase in bad debts is ?$______. ?(Round to the nearest? dollar.)
The net profit or loss from implementing the proposed plan
is ?$______. ?(Round to the nearest
dollar. Enter a negative number for a? loss.)
Is the proposed plan? recommended? ???(Select from the? drop-down menu.)
9) Initiating a cash discount?Gardner Company currently
makes all sales on credit and offers no cash discount. The firm is considering offering a 22?% cash
discount for payment within 15 days.
The? firm’s current average collection period is 60 ?days, sales are 40,000
?units, selling price is ?$45 per? unit, and variable cost per unit is ?$36. The firm expects that the change in credit
terms will result in an increase in sales to 42,000 ?units, that 70?% of the
sales will take the? discount, and that the average collection period will fall
to 3030 days. If the? firm’s required
rate of return on? equal-risk investments is 25?%, should the proposed discount
be? offered????(Note?: Assume a? 365-day
year.)
The additional profit contribution from additional sales is
?$_______. ? (Round to the nearest? dollar.)
The amount of cost that will be saved due to the reduction
in average? A/R is ?$________.???(Round to the nearest? dollar.)
The cost of extending the cash discount to customer is
?$______.???(Round to the nearest? dollar.)
The net profit from the proposed cash discount is
?$_______.???(Round to the nearest? dollar.)
Should the proposed cash discount be? offered????(Select the
best answer? below.)
No
Yes
10) Lockbox system Eagle Industries feels that a lockbox
system can shorten its accounts receivable collection period by 5 days. Credit sales are ?$3,100,000 per? year,
billed on a continuous basis. The firm
has other equally risky investments with a return of 18?%. The cost of the lockbox system is ?$12,000
per year.???(Note?: Assume a? 365-day
year.)
a. What amount of cash will be made available for other uses
under the lockbox? system?
b. What net benefit? (cost) will the firm realize if it
adopts the lockbox? system? Should it
adopt the proposed lockbox? system?
a. The amount of cash
that will be made available for other uses under the lockbox system is
$____________. ? (Round to the nearest? dollar.)
b. The net benefit? (cost) the firm will realize if it
adopts the lockbox system is ?$__________. ? (Round to the nearest dollar.
Enter a negative number for a net? loss.)
Should it adopt the proposed lockbox? system? ? (Select the
best answer? below.)
Yes
No
