Question1: Springsteen Music Company earned 820 million dollar last year and paid out 20% of earnings in dividends.
(a) By how much did the company's retained earnings rise?
(b) With 100 million shares outstanding and a stock price of 50 dollar, determine the dividend yield? [Suggestion: First compute dividends per share.]
Question2: The shares of the Dyer Drilling Co. sell for 60 dollar. The firm has a P/E ratio of 15. Forty (40)% of earnings is paid out in dividends. Determine the firm's dividend yield?
Question3: Laser Electronics Company has $30 million in 8% convertible bonds outstanding. The conversion ratio is 50; the stock price is $17; & the bond matures in fifteen (15) years. The bonds are currently selling at a conversion premium of 60 dollar over their conversion value.
If the value of the common stock rises to $23 on this date next year, find what would your rate of return be if you bought a convertible bond today and sold it in one year? Suppose on this date next year, the conversion premium has shrunk from dollar 60 to dollar 10.