Practice Set-Equity Distribution Policy
1. Assume the stockholders of EX stock are in the 28 percent tax bracket. The closing price of the stock today was $67.18. The firm pays a quarterly dividend of $1.65 per share. What is the expected opening price of the stock tomorrow if tomorrow is an ex-dividend date?
2. NB wants to repurchase 20,000 shares at $21 a share through a tender offer. Shareholders responded by offering 26,500 shares at $21 a share. Assume you are a shareholder and offered your 300 shares as part of the shareholder response. How many of your shares should you expect NB to purchase?
3. EZ just paid an annual dividend of $.68 a share. The firm has a target payout ratio of .6 and a speed of adjustment value of .4. What is the expected value of next year's annual dividend if the firm expects its earnings per share to be $2.20? (Use Lintner's equation for dividend change)
4. You own 460 shares of WS stock. The company plans on issuing a dividend of $.90 a share one year from today and then issuing a final liquidating dividend of $5.40 a share two years from today. Your required rate of return is 14 percent. Ignoring taxes, what is the value of your total holdings in this stock?
5. A firm has a market value equal to its book value. Currently, the firm has excess cash of $300 and other assets of $6,200. Equity is worth $5,000. The firm has 500 shares of stock outstanding and net income of $720. What will the new earnings per share be if the firm uses its excess cashto complete a stock repurchase?