Question 1: The stock of Pills Berry Company is currently selling at $60 per share. The firm pays a dividend of $1.80 per share.
a.) What is the annual dividend yield?
b.) If the firm has a payout rate of 50 percent, what is the firm's P/E ratio?
Question 2: Ms. Queen is in a 35 percent marginal tax bracket. If Ms. Queen receives $3.80 in cash dividends, how much in taxes (per share) will she pay? (Recall the new 15 percent rule.)
Question 3: Plunkett Gym Equipment, Inc., has a $1,000 par value convertible bond outstanding that can be converted into 25 shares of common stock. The common stock is currently selling for $34.75 a share, and the convertible bond is selling for $960.
a. What is the conversion value of the bond?
b. What is the conversion premium?
c. What is the conversion price?
(Assume all bonds in the following problems have a par value of $1,000.)