17
Problems Chapter 1-16
Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green
NOTE: Some functions used in these spreadsheets may require that the "Analysis ToolPak" or "Solver Add-in" be installed in Excel. To install these, click on "Tools|Add-Ins" and select "Analysis ToolPak" and "Solver Add-In."
Chapter 17
Question 1 Input Area:
Dividend per share Tax rate Price
$4.60 15% $80.37
Output Area:
After-tax Dividend Ex-dividend price
$3.91 $76.46
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Question 2 Input Area:
Common stock Par value Capital surplus Retained earnings Total owners' equity a. Stock price Stock dividend b. Stock dividend
$30,000 $1 $285,000 $649,180 $964,180 $30 10% 25%
Output Area:
a. New shares outstanding New shares issued Capital surplus on new shares Common stock Capital surplus Retained earnings
33,000 3,000 $87,000 $33,000 $372,000 $559,180 $964,180 37,500 7,500 $217,500 $37,500 $502,500 $424,180 $964,180
b. New shares outstanding New shares issued Capital surplus on new shares Common stock Capital surplus Retained earnings
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Question 3 Input Area:
Common stock Par value Capital surplus Retained earnings Total owners'Equity Stock price a. Stock split b. Stock split
$30,000 $1 $285,000 $649,180 $964,180 $30 4 for 1 for
1 5
Output Area:
a. New shares outstanding 120,000 The accounts are unchanged except that par value is now $0.25 b. New shares outstanding 6,000 The accounts are unchanged except that par value is now $5.00
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Question 4 Input Area:
a. b. c. d.
Shares outstanding Stock price Stock split Stock divdend percent Stock divdend percent Stock split (shares)
350,000 $90.00 5 for 15.00% 42.50% 4 for
3
7
Output Area:
a. b. c. d. e. a. b. c. d.
Stock split Stock dividend Stock dividend Stock split New shares outstanding New shares outstanding New shares outstanding New shares outstanding
$54.00 $78.26 $63.16 $157.50 583,333 402,500 498,750 200,000
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Question 5 Input Area:
Shares outstanding Dividend per share
8,000 $1.30
Cash Fixed assets Total
Market Value Balance Sheet $38,500 Equity 270,000 $308,500 Total
$308,500 $308,500
Output Area: Price0 PriceX
$38.56 $37.26 $10,400
The equity and cash accounts will decline by: Market Value Balance Sheet $28,100 Equity $270,000 $298,100 Total
Cash Fixed assets Total
$298,100 $298,100
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Question 6 Input Area: Repurchase Shares outstanding Dividend per share Cash Fixed assets Total Output Area: Repurchasing the shares will reduce shareholders' equity by $10,400.00 Shares bought 269.69 New shares outstanding 7,730.31 Price after repurchase $38.56 The repurchase is effectively the same as the cash dividend because you either hold a share worth $38.56 or a share worth $37.26 and $1.30 in cash. Therefore you participate in the repurchase according to the dividend payout percentage; you are unaffected. $10,400 8,000 $1.30 $308,500 $308,500
Market Value Balance Sheet $38,500 Equity $270,000 $308,500 Total
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Question 7 Input Area:
Stock dividend Shares outstanding
25% 12,000
Cash Fixed assets Total
Market Value Balance Sheet $93,000 Debt 509,000 Equity $602,000 Total
$131,000 471,000 $602,000
Output Area: Price0 New shares outstanding PriceX
$39.25 15,000 $31.40
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Question 8 Input Area: Stock dividend Price Par value Common stock Capital surplus Retained earnings Total owners' equity Output Area: New shares outstanding New shares issued Capital surplus for new shares Common stock Capital surplus Retained earnings 466,900 60,900 $2,070,600 $466,900 $3,410,600 $1,295,500 $5,173,000 15% $35 $1 $406,000 $1,340,000 $3,427,000 $5,173,000
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Question 9 Input Area: Stock split Dividend Dividend increase Par value $1 Common stock Capital surplus Retained earnings Total owners' equity Output Area: The equity accounts are unchanged except the new par value the of stock is $0.25 per share. Dividends this year Last year's dividend Dividends per share $1,380,400.00 $1,254,909.09 $3.09 4 $0.85 10% $406,000 $1,340,000 $3,427,000 $5,173,000 for 1
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Question 10 Input Area: Shares owned Dividend per share Liquidating dividend Required return Output Area: Stock price today Equal dividend amount Stock price in one year You want in one year but you will only get You need to sell shares at time 1. Cash flow at time 1 Cash flow at time 2 $42.08 $25.88 $46.087 $25,881.40 $2,300.00 511.67 $25,881.40 $25,881.40 1,000 $2.30 $53 15%
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Question 11 Input Area: Dividend desired in year 1 Shares owned Dividend per share Liquidating dividend Required return Output Area: Stock price in one year Dividend paid in year 2 You will buy shares at time 1. Your dividend in year 2 is PV of homemade dividend PV of current dividends $46.087 $2,300.00 33.63 $54,782.50 $42,075.61 $42,075.61 $750.00 1,000 $2.30 $53 15%
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Question 12 Input Area: Extra dividend Earnings per share Price per share Shares outstanding Output Area: a. Cash Dividend: DPS $9.00 Price per share $55.00 The wealth of a shareholder who is holding one share is $64.00 Repurchase: Shares repurchased 140.63 If you choose to let your shares be repurchased, you have $30 in cash; if you $64.00 in cash. If you keep your shares they are still worth $64.00 b. Cash Dividend: EPS P/E Repurchase: EPS P/E $1.30 42.31 $1.51 42.31 $9,000 $1.30 $64 1,000
c. A share repurchase would seem to be the preferred course of action. Only those shareholders who wish to sell will do so, giving the shareholder a tax timing option that he or she doesn't get with a dividend payment.
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Question 13 Input Area: Dividend yield Income tax rate Earnings growth rate Stock price growth rate Output Area: Growth rate Pretax return 11.75% 16.75% 5.0% 35% 15% 15%
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Question 14 a. Personal tax rate Capital gains tax rate b. Personal tax rate Capital gains tax rate c. Personal tax rate Capital gains tax rate d. Corporate (with 70% exclusion) Personal tax rate Capital gains tax rate Output Area: P0 - PX = P0 - PX = P0 - PX = P0 - PX = 0% 0% 15% 0% 15% 30% 35% 35%
a. b. c. d. e.
D 0.85 D 1.2143 D 1.3769 D Since different investors have widely tax rates on ordinary income and capital gains, then dividend payments have different aftertax implications for different investors. This differential taxation among investors is one aspect of what we have called the clientele effect.
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Question 15 Extra cash Period for investment Treasury bill yield Preferred stock yield Dividend exclusion rate Corporate tax rate Individual income tax rate Individual dividend tax rate Output Area: If the company invests the money now: Corporate investment in T-bills: Aftertax T-bill yield 3.25% FV of investment $2,201,406.16 Aftertax cash flow to shareholders $1,871,195.23 Corporate investment in preferred stock: Preferred stock dividends $160,000.00 Divdends excluded from tax $112,000.00 Taxable dividends $48,000.00 Tax on preferred dividends $16,800.00 Aftertax corporate dividend $143,200.00 Aftertax preferred dividend yield 7.16% FV of preferred investment $2,461,093.48 Aftertax cash flow to shareholders $2,091,929.46 If the company pays a dividend now: Aftertax payment to shareholders $1,700,000.00 Individual invests in Treasury bills: Aftertax individual yield on T-bills 3.45% FV of T-bill investment $1,882,090.08 Individual invests in preferred stock: Preferred stock dividends $136,000.00 Tax on preferred dividends $42,160.00 Aftertax preferred dividend $93,840.00 Aftertax preferred dividend yield 5.52% FV of preferred investment $1,997,345.84 $2,000,000 3 5% 8% 70% 35% 31% 15%
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Question 16 Extra cash Treasury bond yield Corporate tax rate b. Preferred stock yield Dividend exclusion rate Output Area: a. Individual tax rate b. Individual tax rate 35.00% 10.50% $1,000 6% 35% 9% 70%