Ate is 40 ndustry is s 10 million worth of debt with

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ate is 40%. ndustry is
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s $10 million worth of debt, with a required return of 6.5% and uses the proceeds to r $25m = $10m (D) + $15m (E) MV after = MV before = VL = Vu + TcD = $17.5m + (0.3 x $10m) = $20.5m ra = ra (ra - rd) D/E = 8 + (8-6.5)10/15 = 8 + 1.67 = 9.67%
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d to offset interest expense. 0 each share. You expect the firm’s EBIT to be $60 million per year for the foreseeable future
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repurchase outstanding stock. There are no corporate or personal taxes.
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e.
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Section 7: Dividend Policy a. b. = 3,300,000 Dividend payout ratio = Dividend Cash = $4,000,000.00 Net Income $33,000,000.00 c. Delta Inc. 500,000 shares outstanding and its stock trades at $50 per share. 2018 income statement Sales $16,200,000.00 Operating costs incl. depreciation $11,900,000.00 EBIT $4,300,000.00 Interest $300,000.00 EBT $4,000,000.00 Taxes (30%) $1,200,000.00 Net Income $2,800,000.00 (i) = 2.128 per Share P 0 = D 1 r s – g a. investors prefer the current dividends to the capital gains since the current dividends are certain the future which is in their mind. Since the investors are typically risk-averse who prefers the curre near dividends, thus, are discounted at a rate that is lower compared to the future dividends. Due high pay-out ratios. As such, the price of the stock rises since shareholders obtain more dividends the stock as being attractive, thereby lowering the cost of capital whilst increasing common stock v On the other hand, as per the tax differential theory, some investors prefer to receive their dividen payment. They thus prefer reinvesting the dividends in the company which will lead to capital gain since the stock value will increase. a. Equity = 6,000,000 X 55% Delta had a 38% dividend payout ratio in 2017. If they want to retain this payout rat dividend be in 2018? Dividend per Share = (2800 X 38%) / 500
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(ii) If the company maintains this 38% payout ratio in 2018, what will be the current div = 2.128 / 50 = 4.256% (iii) The company reported net income of $2.4 million in 2017. Assume that the number = 1.824 per Share (iv) Total Dividend Paid in 2018 = 1.824 X 500,000 912000 and Dividend Pay-out Ratio = 912,000 / 2,800,000 32.57% (v) maximum capital expenditure they could commit to and maintain their target capital st 5115000 d. Net Income 50% Current Dividend Yield = D 1 / P o DPS in 2017 = 2400000 X 38% / 500,000 As an alternative to maintaining the same dividend payout ratio, Delta is considerin it paid in 2017. If it chooses this policy, what will be the company’s dividend payout If DPS in 2017 is maintained in 2018, then Delta has a target capital structure of 60% debt and 40% equity. In 2019, assuming maximum capital expenditure they could commit to and maintain their target capita Super Thrift Pharmaceuticals traditionally pays an annual dividend equal to 50% of year (2018) is $30 million. The company has 15 million shares outstanding. Investo
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Net Income 2018 $30,000,000.00 Outstanding Share $15,000,000.00 Annual Rate 5% Return on Share 12% (i) What is Super Thrift’s current (2018) dividend per share? $ 1.00 (ii) What is the dividend per share expected for the next year (2019)? = 1.05 (iii) Use the Gordon growth model to calculate Super Thrift’s stock price today.
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