HOMEWORK PROBLEM

HOMEWORK PROBLEM - 1 Your portfolio is 310 shares of Sunny...

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Unformatted text preview: 1. Your portfolio is 310 shares of Sunny Morning, Inc. The stock currently sells for $101 per share. The company has announced a dividend of $3.20 per share with an ex-dividend date of April 19. Required: Assuming no taxes, how much will your stock be worth on April 19? Stock value $ Explanation: With no taxes we would expect the stock price to drop by exactly the amount of the dividend, so the new stock price will be: New stock price = $101.00 3.20 New stock price = $97.80 Your total stock investment will be worth: Stock value = 310 $97.80 Stock value = $30,318 2./ Your portfolio is 370 shares of Sunny Morning, Inc. The stock currently sells for $107 per share. The company has announced a dividend of $3.80 per share with an ex-dividend date of April 19. Required: Assuming no taxes, what is your portfolio value as of April 19? (Do not include the dollar sign ($).) Portfolio value $ Explanation: With no taxes we would expect the stock price to drop by exactly the amount of the dividend, so the new stock price will be: New stock price = $107.00 3.80 New stock price = $103.20 Your total stock investment will be worth: Stock value = 370 $103.20 Stock value = $38,184 Your total portfolio value will be the total stock value plus the dividends received, so: Portfolio value = $38,184 + (370 $3.80) Portfolio value = $39,590 3. / Palmer, Inc., has declared a $7.70 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 10 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Palmer sells for $128 per share, and the stock is about to go ex-dividend. Required: What do you think the ex-dividend price will be? Ex-dividend price $ Explanation: The aftertax dividend is the pretax dividend times one minus the tax rate, so: Aftertax dividend = $7.70(1 .10) Aftertax dividend = $6.93 The stock price should drop by the aftertax dividend amount, or: Ex-dividend price = $128.00 6.93 Ex-dividend price = $121.07 4. / The owners equity accounts for Trans World International are shown here: Common stock ($1 par value) $ 45,000 Capital surplus 236,000 Retained earnings 780,000 Total owners equity $ 1,061,000 Requirement 1: Assume Trans World stock currently sells for $31 per share and a 8 percent stock dividend is declared. (a) How many new shares will be distributed? New shares issued (b) Show the new balance for the equity accounts. (Do not include the dollar signs ($).) Common stock $ Capital surplus Retained earnings Total owners equity $ Requirement 2: Now assume that instead Trans World declares a 12 percent stock dividend. (a) How many new shares will be distributed?...
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This note was uploaded on 03/15/2012 for the course FIN 300 taught by Professor Cindychen during the Fall '07 term at CSU Long Beach.

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HOMEWORK PROBLEM - 1 Your portfolio is 310 shares of Sunny...

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