Corporate Finance Homework: Shareholder Value and Dividends

This document presents solutions to a corporate finance homework assignment. The solutions cover a range of topics including share valuation, calculations related to rights offerings, dividend policy analysis, and the impact of stock splits and dividends on financial metrics. The assignment includes calculations for earnings per share (EPS), dividend yield, and payout ratios, as well as an analysis of the effects of different financial strategies on shareholder value. The document provides detailed answers to various problems, including those related to voting rights, stock splits, and dividend payouts, offering a comprehensive overview of financial concepts and calculations. The solutions are presented with clear explanations and calculations to aid in understanding the financial concepts.

1.
a. 37,25,000
b. 58.8
2.
16,401 shares
3.
a. 511,000 votes
b. 13,230 Votes
c. 0.259 or 2.59%
4.
a. Mr. Clark can elect 4 directors.
b. Ms. Ramsey and her friends canelect 7 directors.
c. Mr. Clark can elect 8 directors.
C-2 : YES
d. Mr. Clark can elect 4 directors.
5.
22.90%
6.
a. Value of right = $3 per right
b. Value of portfolio before the offerings = $268
c-1. Ex-right per share = $32 per share
c-2. Value of portfolio = $128
d. Value of Portfolio = $160
7.

a) 21.20
b) 21.42
8.
A. 28500000
B. 48.66117
C. 585683
9
41.02
10.
a. increase in reatined earnings = 369,600,000
b. dividend yield = 1.13%
11.
a. High payout Ratio
b. Low payout ratio
12.
a. The legal limit is equal to current year retained earnings = $108,000,000
b. The practical limit is the total cash balance of the company = 22,750,000
c. Dividend payout ratio = dividends paid divided by net income = 0.88 or 88%
13.

a.
Stage Dividend Payout ($)
I 0
II 0.31 (1.95*16%)
III 0.82 (2.50*33%)
IV 1.87 (3.40*55%)
B. After tax income = $ 484.80
C. Stage I and stage IV
14.

a.
Effect of Stock Split
Common stock $200,000
Capital excess of par $100,000
Retained earnings $732,000
Total equity $1,032,000
b.
Effect of Stock Split
Common stock $ 220,000
Capital excess of par $ 170,000
Retained earnings $ 642,000
Total equity $ 1,032,000
c.
Stock dividend
15.
A. Plan A: 7.7 Plan B: 8.4
B. Plan A:5.82 Plan B: 5.69
C. Plan A
16.
a. 3.7
b. 10.7

17.
8%.
18.
a. Common Stock capital (68250 shares @1) 68250
Capital in excess of Par (65000+14000) 79000
Retained earnings (170000-16250) 153750
Stockholder's equity 301000
B. Common Stock capital (68250 shares @1) 68250
Capital in excess of Par (65000+14000) 79000
Retained earnings (153750-6825) 146925
Stockholder's equity 294175
19.
a-1. = $4.09
a-2. No
b.= $1.62
c.= $0.20
20.
a. 119
b. B. 159
c. Plan B

21.
Part A-1:
New Shares = 4,000,000
Part A-2:
New par value = 5
Part B-1:
New Shares = 6,000,000
Part B-2:
New par value = 3.333
Part C
EPS before split = 7
EPS after 2 to 1 stock split
Earning = 14,000,000
EPS after 2 for 1 split = 14,000,000/ 4,000,000
EPS after 2 for 1 split = 3.5
EPS after 3 to 1 stock split
Earning = 14,000,000
EPS 3 for 1 split = 14,000,000/ 6,000,000
EPS 3 for 1 split = 2.33
Part D:
After-split price = Price Earning ratio * Earnign per share
2 for 1 split:
After-split price = 15.71 * 3.5
After-split price = 54.985
3 for 1 split:
After-split price = 15.71 * 2.33
After-split price = 36.66

22.
A.
Common stock $28600000
Capital In excess $10,200,000
Retained earnings $16,200,000
Net worth $55000000
B.
EPS: 2.73
Stock Price: 27.27
C. 132
D.
Before: $3600
After $3600
23.
A.
Common Stock (3600000 @10 $ par) 36,000,000
Capital In Excess of Par 30,000,000
Retained Earnings 19,000,000
Net Worth 85,000,000
B.
EPS 2.08
Stock Price 29.17

C.: 156 shares
D.
Before: 4550
After 4550
E.5460
F. Yes
G. 3%
24.
a. 18
b. Anticipated stock price = $24.00
c. Stock price = $19.20
d. Dean Smith’s holdings decreased by = $86.40
25.
a. 15
b. 2
c. 117647
d. 3.4
e. 1= 17 2=2
f. 17 No
26.

a).
Total cash dividends $53 mil.
b).
Total cash dividends $37.60 mil.
c).
Total cash dividends $53,579,520
d).
Year Net Income Payout Ratio Dividends Shares(millions) Dividends Per Share
1. $1.90
2. 1.33
3. 1.18
4. 1.22
5. 1.01