Respuesta :
Answer:
The amount of dividend Giant Machinery can pay its shareholders this year = $136,250
The Dividend Payout ratio of the company = 54.50%
Ex-dividend price = $22.875
The current value of the firm's equity in total = $9196428.571
The current value of the firm's equity per share = $6.131
Step-by-step explanation:
Given that:
The Current Capital Structure = 65% equity and 35% debt.
The net income in the current year = $250,000
Also, the company is planning to launch a project that will requires an investment of $175,000 next year.
The current share price = $25/share
(a)
The first objective is to determine how much dividend Giant Machinery can pay its shareholders this year and what is dividend payout ratio of the company.
The amount of dividend Giant Machinery can pay its shareholders this year= Net profit - Investment amount × (percentage of equity)
= 250,000 - 175,000 × (65%)
= 250,000 - 113,750
= $136,250
The dividend payout ratio of the company.can be calculated as follows:
Dividend Payout ratio of the company [tex]= \mathbf{\dfrac{ total \ \ dividends}{total \ \ earning}}[/tex]
We all know that the net income in the current year is the Total Earning which is 250,000
Thus;
The Dividend Payout ratio of the company [tex]= \mathbf{\dfrac{ 136250}{250000}}[/tex]
The Dividend Payout ratio of the company = 0.545
The Dividend Payout ratio of the company = 54.50%
b).
If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend.
Also, assuming:
the tax on dividend = 15%.
We are to calculate the ex-dividend price tomorrow morning.
To calculate the ex-dividend price tomorrow morning; we use the relation:
Ex-dividend price which is the result of the difference between the current price and dividend multiply by the difference between the 1 and the tax on the dividend
i.e
Ex-dividend pric = current price - Dividend × (1 - tax on dividend)
Given that :
The current share price = $25/share
Therefore;
Ex-dividend price = $25 - $2.5 × ( 1 - 15%)
Ex-dividend price = $25 - $2.5 × ( 1 - 0.15)
Ex-dividend price = $25 - $2.5 × 0.85
Ex-dividend price = $25 - $2.125
Ex-dividend price = $22.875
C)
From the information given in the part C of the question:
the company now plans to pays a total dividend of $2.5 million.= $ 2,500.000
Let say the year the dividend was paid was 0 year
and 7.5 million one year from now as a liquidating dividend.
So; the dividend paid in year 1 now = 7.5 million = $ 7,500,000
The required rate of return for shareholders is 12%
Outstanding share of the firm = 1.5 million = $1,500,000
We are to calculate the current value of the firm’s equity in total and per share if the firm has 1.5 million shares outstanding.
To start with the current value of the firm’s equity in total;
The current value of the firm's equity in total =[tex]\mathbf{amount \ of \ dividend \ paid \ in \ 0 \ year + \dfrac {amount \ of \ dividend \ paid \ in \ 1 \ year } { 1+required \ rate \ of \ return } }[/tex]= [tex]\mathbf{2,500,000 + \dfrac{7,500,000 }{1+ 0.12} }[/tex]
[tex]=\mathbf{2,500,000 + \dfrac{7,500,000 }{1.12} }[/tex]
= 2,500,000 + 6696428.571
= $ 9196428.571
The current value of the firm's equity per share =[tex]\mathbf{ \dfrac{ current \ value \ of \ the \ firm's \ equity \ in \ total}{ Outstanding \ share }}[/tex]
[tex]\mathbf{= \dfrac{9196428.571}{1500000}}[/tex]
= $6.130952381
≅ $6.131
The current value of the firm's equity per share = $6.131
