Autumn 2005- TBS 907- Tutorial 6 - Dividend Policy

Autumn 2005- TBS 907- Tutorial 6 - Dividend Policy - TBS...

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TBS 907- AUTUMN 2005 TUTORIAL 6 – DIVIDEND POLICY Question 1 The Board of Directors of Smith Ltd. are concerned that their stock might be undervalued in the market. One analyst in Merrill Lynch’s research department commented that the earning per share was low and the cash balance of $800 million was excessive for the company. It was suggested that only $200 million of cash would be sufficient. Your boss, the CFO, called you to her office and asked you to do a comparative study on the merits of special dividends, open market repurchase ( on market), and tender offerings. Your company has 100 million shares of stock outstanding and anticipates $500 million in total earnings this year. The stock is trading at a P/E of 12 based on the expected earnings. a. What is the anticipated EPS this year for the company and what is the current stock price? b. If the company keeps $200 million in cash and pays out $600 million excess cash as a special dividend, what would be the dividend per share and is there any impact on the EPS? What might be the response
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This note was uploaded on 07/10/2009 for the course FIN FIN taught by Professor Dr. during the Spring '09 term at Baptist College of Health Sciences.

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Autumn 2005- TBS 907- Tutorial 6 - Dividend Policy - TBS...

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