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Gamma Medical's stock trades at $90 per share. The company is contemplating a 3-for-2 stock split.

Gamma Medical’s stock trades at $90 per share. The company is contemplating a 3-for-2 stock split. Assuming the stock split will have no effect on the total market value of its equity, what will be the company’s stock price following the stock split?
Northern Pacific Heating and Cooling INC. has a 6-month backlog of orders for its patented solar heating system. To meet this demand, management plans to expand production capacity by 40% with a $10 million investment in plant and machinery. The firm wants to maintain a 40% debt-to-total-assets ratio in its capital structure: it also wants to maintain its past dividend policy of distributing 45% of last year’s net income. In 2007, net income was $5 million. How much external equity must Northern Pacific seek at the beginning of 2008 to expand capacity as desired?
After a 5-for-1 stock split, the Strasburg Company paid a dividend of .75 per new share, which represents a 9% increase over last year’s pre-split dividend. What was last year’s dividend per share?
The Welch Company is considering three independent projects, each of which requires $5 million investment. The estimated internal rate of return IRR and cost of capital for these projects are presented below:
Project H (High Risk) Cost of Capital= 16% IRR= 20%
Project M (Medium Risk) Cost of Capital= 12% IRR= 10%
Project L (Low Risk) Cost of Capital= 8% IRR= 9%
Note the project’s cost of capital varies because the projects have different levels of risk. The company’s optimal capital structure calls for 50% debt and 50% common equity. Welch expects to have net income of 7,287,500. If Welch bases its dividends on the residual model (all distributions are in the form of dividends.) What will its payout ratio be?
Assume the SSC has an $800,000 capital budget planned for the coming year. You have determined that its present capital structure (60% equity and 40% debt) is optimal, and its net income is forecasted at $600,000. Use the residual distribution model approach to determine the SSC’s total dollar distribution. Assume for now that the distribution is in the form of a dividend. Then explain what would happen if net income were forecasted at $400,000 or at $800,000.

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