Company pays a dividend 7000 repurchases Shares No effect Comp 2 Share price

# Company pays a dividend 7000 repurchases shares no

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Company pays a % dividend = \$ 70.00 repurchases ? Shares = No effect Comp 2 Share price Today Price = \$ 40.00 Tomorrow Price = \$ 39.15 3 Share price Stock price Before = \$ 60.000 After = \$ 60.000 (repurchase has no effect on price) 4 Share price Current price = \$ 35.27 Before-tax rate of return = 13.40% (for holding period) Price = \$ 37.82 (w/new dividend price) new before-tax rate of return = 16.35% Why is it higher? = The before-tax return is higher because the larger divide 5 Share price Stock Pension Investor Corp Individual Po A 28.00% 18.20% 25.20% \$ 224.00 B 28.00% 21.63% 24.50% \$ 182.00 C 28.00% 25.06% 23.80% \$ 140.00 6
Sustainable growth rate = 6.30% Internal growth rate = 3.78% 7 Balancing item is = dividends Net income next year is = \$ 840.00 Equity increases by = \$ 440.00 dividends will = \$ 400.00 Assets Total 8 2013 Net income External financing 15% \$ 690.00 \$ 450.00 \$ 345.00 \$ 105.00 20% \$ 720.00 \$ 600.00 \$ 360.00 \$ 240.00 25% \$ 750.00 \$ 750.00 \$ 375.00 \$ 375.00 Assets Total 9 Income statement Base 20% 10% A Revenue \$ 4,500.00 \$ 5,400.00 \$ 4,950.00 Cost of goods sold \$ 4,050.00 \$ 4,860.00 \$ 4,455.00 EBIT \$ 450.00 \$ 540.00 \$ 495.00 Interest \$ 90.00 \$ 90.00 \$ 90.00 Ernings before taxes \$ 360.00 \$ 450.00 \$ 405.00 Taxes \$ 144.00 \$ 180.00 \$ 162.00 Net income \$ 216.00 \$ 270.00 \$ 243.00 Dividends \$ 144.00 \$ 180.00 \$ 162.00 Retained earnings \$ 72.00 \$ 90.00 \$ 81.00 Balance Sheet Assets Base 20% 10% Net working capital \$ 450.00 \$ 540.00 \$ 495.00 Fixed assets \$ 1,800.00 \$ 2,160.00 \$ 1,980.00 Total assets \$ 2,250.00 \$ 2,700.00 \$ 2,475.00 Growth rates Growth in assets Retained earnings
Lia and Equity Long term debt \$ 900.00 \$ 900.00 \$ 900.00 Equity \$ 1,350.00 \$ 1,440.00 \$ 1,431.00 Total Lia & Equity \$ 2,250.00 \$ 2,340.00 \$ 2,331.00 Required external financing = \$ 360.00 \$ 144.00 10 income Statement 2012 Balance Sheet Revenue \$ 5,400.00 Assets Fixed costs \$ 53.00 Net working capital \$ 1,200.00 Variable costs \$ 4,320.00 Fixed assets \$ 2,400.00 Depreciation \$ 240.00 Total assets \$ 3,600.00 Interest \$ 72.00 taxable income \$ 715.00 Liabilities and Equity taxes \$ 286.00 Debt \$ 900.00 Net income \$ 429.00 Equity \$ 2,700.00 Dividends \$ 286.00 Total lia and equity \$ 3,600.00 Retained earnings \$ 143.00 Assume net working capital will = 50% Pro-forma income statement 2013 Balance sheet 2 Revenue \$ 6,750.00 Ass Fixed costs \$ 53.00 Net working capital Variable costs \$ 5,400.00 Fixed assets Depreciation \$ 240.00 Total assets Interest \$ 72.00 taxable income \$ 985.00 Liabilities taxes \$ 394.00 Debt Net income \$ 591.00 Equity Dividends \$ 394.00 Total lia and equity Retained earnings \$ 197.00 Assume the balancing item is debt and no equity is to be issued Balance sheet 2013 (year end) Assets Net working capital \$ 1,500.00 Fixed assets \$ 3,000.00 Total assets \$ 4,500.00 Projected Liabilities and Equity Debt \$ 1,603.00
Equity \$ 2,897.00 Total lia and equity \$ 4,500.00 11 Sustainable growth rate = 3.6% New debt = \$ 5,400.00 fi Maximum growth rate = 1.8%
Price per share = \$ 84.00 hares outstanding = 1,000,000 Split = 6 for = 5 Stock dividend = 20% pany repurchases = 100,000 Dividend = \$ 0.85 Shares outstanding = 31,000 Assets Liabilities and Equity Cash = \$ 220,000.00 \$ 1,240,000.00 = Equity Fixed Asseys = \$ 1,020,000.00 Total Assets = \$ 1,240,000.00 \$ 1,240,000.00 = Total Lia and Equity Total market value = \$ 210,000.00 Shares outstanding = 3500 stock repurchase = \$ 21,000.00 After-tax rate of return = 10.00% Tax rate on dividends = 30.00% Dividend = \$ 4.00 Years from now = 1 Expected post dividend share price = \$ 36.00 New dividend price = \$ 8.00 end creates a greater tax burden. Expected Dividend Stock Stock price = \$ 100.00 A \$ - \$ 28.00 Corp Tax rate = 35% (Cap Gains) B \$ 14.00 \$ 14.00 Corp Tax rate = 10.5% (dividends) C \$ 28.00 \$ - Indiv Tax rate = 15% (dividends) Indiv Tax rate = 10% (Cap Gain) Tax on dividends = 50% Tax on Cap gains = 20% after tax yield = 10% 80% Asset turnover = 1.40 Expected Capital gain
Profit margin = 6.00% Payout ratio = 25.00% equity/assets = 0.60 Income Statement Sales = \$ 3,000.00 2013 Sales increase = 20% Costs = \$ 2,300.00 Net Income = \$ 700.00 Blance Sheet (year end) 2011 2012 2011 2012 \$ 3,500.00 \$ 4,200.00 Debt \$ 833.00 \$ 2,000.00 Equity \$ 2,667.00 \$ 2,200.00 \$ 3,500.00 \$ 4,200.00 Total \$ 3,500.00 \$ 4,200.00 Income Statement 2012 Sales = \$ 2,500.00 Dividend payout ratio = 50% Costs = \$ 1,900.00