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Stock Split, Residual Distribution Policy, External Equity Financing




Question;1. Stock SplitSuppose you own 4,000 common shares of Laurence Incorporated. The EPS is $8.00, the DPS is$4.75, and the stock sells for $65 per share. Laurence announces a 2-for-1 split. Immediatelyafter the split, how many shares will you have?What will the adjusted EPS and DPS be? Round your answers to the nearest cent.EPSDPS$$What would you expect the stock price to be? Round your answer to the nearest cent.$2. Residual Distribution PolicyHarris Company must set its investment and dividend policies for the coming year. It has threeindependent projects from which to choose, each of which requires a $4 million investment.These projects have different levels of risk, and therefore different costs of capital. Theirprojected IRRs and costs of capital are as follows:Project A: Cost of capital = 16%, IRR = 20%Project B: Cost of capital = 10%, IRR = 15%Project C: Cost of capital = 9%, IRR = 8%Harris intends to maintain its 45% debt and 55% common equity capital structure, and its netincome is expected to be $11,296,500. If Harris maintains its residual dividend policy (with alldistributions in the form of dividends), what will its payout ratio be? Round your answer to twodecimal places.%3. External Equity FinancingGardial GreenLights, a manufacturer of energy efficient lighting solutions, has had such successwith its new products that it is planning to substantially expand its manufacturing capacity with a$20 million investment in new machinery. Gardial plans to maintain its current 45% debt-tototal-assets ratio for its capital structure and to maintain its dividend policy in which at the end ofeach year it distributes 40% of the year's net income. This year's net income was $8 million. Howmuch external equity must Gardial seek now to expand as planned? Enter your answer inmillions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Roundyour answer to two decimal places.$ million4. Stock SplitFauver Enterprises declared a 3-for-1 stock split last year, and this year its dividend is $1.70per share. This total dividend payout represents a 10% increase over last year's pre-split totaldividend payout. What was last year's dividend per share? Round your answer to the nearestcent.$


Paper#39402 | Written in 18-Jul-2015

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