Problem 1: Charleston Industrial revised its dividend policy and decided that it wants to maintain a retained earnings account of $1 million. The company's retained earnings account at the end of 2008 was $750,000, and its earnings available to common stockholders of $800,000 in 2009. What is Charleston Industrial's dividend payout ratio for 2009?
Problem 2: Eliza Doolittle, the chief financial officer of East West Communications Corporations, has identified $14 million worth of new capital projects that the company should invest in next year. The optimal capital structure for the company is 40% debt and 60% equity. If the expected earnings for this year are $10 million, what amount of dividend should she recommend according to residual theory?
Problem 3: Use the same data given in problem 16-7. Now what would be the amount of dividends that could be paid if East West's net income for this year is:
a. $16 million?
b. $6 million?
Problem 4: Jan Brady, chief accountant of Mulberry Silk Products, is trying to work out the feasibility of a 20% stock dividend. The equity section of the balance sheet follows:
Common Stock (2 Million shares, $1 Par 2000
Capital in Excess of Par 8,000
Retained Earnings 10,000
Total Common Equity 20,000
The current market price of the company's stock is $31 per share. Is it possible to apy a 20% stock dividend? Is it possible to pay a 10% stock dividend? Explain?
Problem 5: Use the same data given in problem 16-10. After payment of a 10% stock dividend, what will be the expected market price of the stock? Also, show how the equity section of the balance sheet will change.
Problem 6: Malea Liberty has 800,000 common stock share outstanding. It has decided to declare a 30% stock dividend. The new par value is the same as the original par value, $3. Before the declared dividend, the retained earnings account was $60,000,000 and capital in excess of par was $13,600,000. The current stock price is $40 per share. Calculate the new values for the following items:
a. Number of shares of common stock?
b. Capital in excess of par?
c. Retained earnings?
Problem 7: Malea Liberty market price before the declared stock dividend was $40 per share. What would be the market price after the declared stock dividend described in the problem 16-12 (Assume the total value of the firm's stock remains the same.)