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Fundamentals of corporate finance

# Fundamentals of corporate finance - Chapter 18 homework Key...

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Chapter 18 homework Key 1. The declaration date is the date on which the: a. holders of record are determined for a dividend payment. b. stock begins selling without entitlement to an upcoming dividend payment. C . board of directors passes a resolution to pay a dividend. d. dividend checks are mailed. e. bank trustee approves a dividend payment. Ross - Chapter 018 #4 SECTION: 18.1 TOPIC: DECLARATION DATE TYPE: DEFINITIONS 2. Randall's, Inc. has 20,000 shares of stock outstanding with a par value of \$1.00 per share. The market value is \$12 per share. The balance sheet shows \$42,000 in the capital in excess of par account, \$20,000 in the common stock account and \$50,500 in the retained earnings account. The firm just announced a 5 percent (small) stock dividend. What will the balance in the retained earnings account be after the dividend? A . \$38,500 b. \$39,500 c. \$50,500 d. \$61,500 e. \$62,500 Retained earnings = [(20,000 shares .05) \$12 1] + \$50,500 = \$38,500 AACSB TOPIC: ANALYTIC Ross - Chapter 018 #70 SECTION: 18.8 TOPIC: SMALL STOCK DIVIDEND TYPE: PROBLEMS

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3. You own 500 shares of Babcock, Inc. stock. The company has stated that it plans on issuing a dividend of \$.30 a share at the end of this year and then issuing a final liquidating dividend of \$3.30 a share at the end of next year. Your required rate of return is 10 percent. Ignoring taxes, what is the value of one share of this stock today? a. \$0.27 b. \$1.73 C . \$3.00 d. \$3.27 e. \$3.60 Value per share = (\$.30 / 1.10 1 ) + (\$3.30 / 1.10 2 ) = \$3.00 AACSB TOPIC: ANALYTIC Ross - Chapter 018 #59 SECTION: 18.2 TYPE: PROBLEMS 4. The Peanut Shop has 5,000 shares of stock outstanding with a par value of \$1.00 per share. The current market value of the firm is \$390,000. The company just announced a 3-for-1 stock split. What will the market price per share be after the split? a. \$13 B . \$26 c. \$42 d. \$52 e. \$78 Market price per share = (\$390,000 / 5,000) 1 / 3 = \$26 AACSB TOPIC: ANALYTIC Ross - Chapter 018 #81 SECTION: 18.8 TOPIC: STOCK SPLIT TYPE: PROBLEMS
5. The Landfill Company declared a dividend of \$.80 a share on October 15 to holders of record on Monday, November 1. The dividend is payable on December 15. George purchased 200 shares of Landfill Company stock on Friday, October 29. How much dividend income will George receive on December 15 from the Landfill Company? A . \$0 b. \$0.80 c. \$1.60 d. \$160.00 e. \$320.00 George will not receive any dividend income because he purchased the shares after the ex-dividend date. AACSB TOPIC: ANALYTIC Ross - Chapter 018 #55 SECTION: 18.1 TOPIC: STOCK DIVIDEND TYPE: PROBLEMS 6. On July 14, you purchased 1,500 shares of Myron stock. On August 1, you sold 500 shares of this stock for \$16 a share. You sold an additional 300 shares on August 18at a price of \$18 a share. The company declared a \$.75 per share dividend on August 3 to holders of record as of Wednesday, August 15. This dividend is payable on August 31. How much dividend income will you receive on August 31 as a result of your ownership of

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Fundamentals of corporate finance - Chapter 18 homework Key...

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