# 39 rohter galeano inc is considering how to set its

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39.Rohter Galeano Inc. is considering how to set its dividend policy. It has a capital budget of\$3,000,000. The company wants to maintain a target capital structure that is 15% debt and 85% equity.The company forecasts that its net income this year will be \$3,500,000. If the company follows aresidual dividend policy, what will be its total dividend payment?a.\$205,000b. \$500,000c.\$950,000d. \$2,550,000e.\$3,050,000ANS: CThe amount of new investment which must be financed with equity is:\$3,000,00085% = \$2,550,000.Since the firm has \$3,500,000 of net income,\$950,000= \$3,500,000\$2,550,000 will be left fordividends.PTS: 1DIF:Difficulty: EasyOBJ: LO: 14-7NAT: BUSPROG: AnalyticSTA: DISC: Dividend policy
LOC: TBATOP: Residual dividend policynonalgorithmicKEY:Bloom’s: ApplicationMSC: TYPE: Multiple Choice: ProblemNOT: With some combinations of variables, the residual policy may result in zero dividends and azero payout ratio. These outcomes are noted in the topic [TOP] field if applicable.40.Sanchez Company has planned capital expenditures that total \$2,000,000. The company wants tomaintain a target capital structure that is 35% debt and 65% equity. The company forecasts that its netincome this year will be \$1,800,000. If the company follows a residual dividend policy, what will beits total dividend payment?a.\$100,000b. \$200,000c.\$300,000d. \$400,000e.\$500,000ANS: EThe amount of new investment which must be financed with equity is:\$2,000,00065% = \$1,300,000.Since the firm has \$1,800,000 of net income only\$500,000= \$1,800,000\$1,300,000 will be left fordividends.PTS: 1DIF:Difficulty: EasyOBJ: LO: 14-7NAT: BUSPROG: AnalyticSTA: DISC: Dividend policyLOC: TBATOP: Residual dividend policynonalgorithmicKEY:Bloom’s: ApplicationMSC: TYPE: Multiple Choice: ProblemNOT: With some combinations of variables, the residual policy may result in zero dividends and azero payout ratio. These outcomes are noted in the topic [TOP] field if applicable.41.Yesterday, Berryman Investments was selling for \$90 per share. Today, the company completed a 7-for-2 stock split. If the total market value was unchanged by the split, what is the price of the stocktoday?a.\$23.21b. \$24.43c.\$25.71d. \$27.00e.\$28.35ANS: CNumber of new sharesNumber of old sharesOld (pre-split) priceNew price = Old price(Old shrs/New shrs)\$25PTS: 1DIF:Difficulty: EasyOBJ: LO: 14-13NAT: BUSPROG: AnalyticSTA: DISC: Dividend policyLOC: TBATOP: Stock splitsfractional splitsKEY:Bloom’s: ApplicationMSC: TYPE: Multiple Choice: ProblemNOT: With some combinations of variables, the residual policy may result in zero dividends and azero payout ratio. These outcomes are noted in the topic [TOP] field if applicable.
42.Last week, Weschler Paint Corp. completed a 3-for-1 stock split. Immediately prior to the split, itsstock sold for \$150 per share. The firm's total market value was unchanged by the split. Other thingsheld constant, what is the best estimate of the stock's post-split price?a.\$50.00b. \$52.50c.\$55.13d. \$57.88e.\$60.78ANS: ANumber of new sharesNumber of old sharesPre-split stock price\$Post-split stock price: P0/New per old =\$50PTS: 1DIF:Difficulty: EasyOBJ: LO: 14-13NAT: BUSPROG: AnalyticSTA: DISC: Dividend policyLOC: TBATOP: Stock splitssimple splitsKEY:Bloom’s: ApplicationMSC: TYPE: Multiple Choice: ProblemNOT: With some combinations of variables, the residual policy may result in zero dividends and azero payout ratio. These outcomes are noted in the topic [TOP] field if applicable.

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Term
Spring
Professor
bender
Tags
Strike price, Option time value