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
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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
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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
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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%
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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
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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
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