Company ABC has 10,000 shares outstanding and the stock price is $100. The company is expected...

Company ABC has 10,000 shares outstanding and the stock price is $100. The company is expected to pay a dividend of $10 per share next year and thereafter the dividend is expected to grow indefinitely by 6% a year. The company now makes an announcement: It will repurchase shares next year instead of issuing cash dividends. But from year 2 on the payout policy stays the same. (8 points) a. What is the expected rate of return on the stock? b. At what price will the company repurchase shares next year? How many shares will be repurchased? c. After the payout, what is the percentage ownership of an investor who holds 1% of the shares before the payout and does not sell shares during the repurchase? d. What is the present value of all future dividends to this investor?

Expert Solution

jeff jeffy answered 7 months ago

Martin has $100 and would like to buy shares of ABC stock. The current price ABC...

Martin has $100 and would like to buy shares of ABC stock. The current price ABC stock is $100 per share and he believes that it will go up by 5% in a month. He is considering buying one-month call options on ABC stock. A one-month call option on ABC stock with strike price being $102 costs $2. What is the profit for Martin should the share price of ABC stock do go up by 5% in a month? (5...

Nottebart Corporation has outstanding 10,000 shares of $100 par value, 6% preferred stock and 60,000 shares...

Nottebart Corporation has outstanding 10,000 shares of $100 par value, 6% preferred stock and 60,000 shares of $10 par value common stock. The preferred stock was issued in January 2017, and no dividends were declared in 2017 or 2018. In 2019, Nottebart declares a cash dividend of $300,000. How will the dividend be shared by common and preferred stockholders if the preferred is (a) noncumulative and (b) cumulative?

There are 100 shares outstanding of a company and Net Income is $10,000 and is paid...

There are 100 shares outstanding of a company and Net Income is $10,000 and is paid out to shareholder as dividend without retaining earning so the dividend per share is $100. Assuming a 10 percent required return, the value of a share of stock today.

ABC Industries has 5 million shares of common stock outstanding with a market price of $20.00...

ABC Industries has 5 million shares of common stock outstanding with a market price of $20.00 per share. The company also has 1 million shares outstanding preferred stock with a market price of $8.50 per share, and 200,000 bonds outstanding, each with a face vale $1,000 and selling at 97.5% par value. The cost of equity is 12%, the cost of preferred is 10%, and the cost of debt is 7.46%. If ABC's tax rate is 34% what is the...

A stock is currently trading for $36. The company has a price–earnings multiple of 10. There are 100 million shares outstanding.

A stock is currently trading for $36. The company has a price–earnings multiple of 10. There are 100 million shares outstanding. Your model indicates that the stock is actually worth $31. The company announces that it will use $310 million to repurchase shares. After the repurchase, what is the value of the stock, according to your model? Do not round intermediate calculations. Round your answer to the nearest cent. $ After the repurchase, what is the actual price–earnings multiple of...

ABC Company has 4,985 shares outstanding at a price of $167.01 per share. What will be...

ABC Company has 4,985 shares outstanding at a price of $167.01 per share. What will be the new shares outstanding after a stock dividend of 8%. Enter your answer rounded off to two decimal points.

A company has 10,000 shares of $10 par common stock outstanding. Prepare entries to record the...

A company has 10,000 shares of $10 par common stock outstanding. Prepare entries to record the following: a. Purchased 1,000 shares of treasury stock at $12. The treasury stock is accounted for by the cost method. There were no previous purchases of treasury shares. If an amount box does not require an entry, leave it blank. b. Sold 500 shares of treasury stock at $15. If an amount box does not require an entry, leave it blank. c. Purchased equipment...

The Barney company has outstanding stock as follows: 10% preferred stock 10,000 shares $10 par cumulative...

The Barney company has outstanding stock as follows: 10% preferred stock 10,000 shares $10 par cumulative and participating Common stock 60,000 shares $5 par The preferred stock is permitted to participate after common receives $1 per share. The participation is on a total par relationship. There are no arrears going into the first year. Prepare a dividend allocation schedule including a participation schedule showing total dollars and per share calculations assuming the following dividends are declared. Year 1 $0 Year...

Riverbed Company has outstanding 2,700 shares of $100 par, 7% preferred stock and 14,200 shares of...

Riverbed Company has outstanding 2,700 shares of $100 par, 7% preferred stock and 14,200 shares of $10 par value common. The following schedule shows the amount of dividends paid out over the last 4 years. Allocate the dividends to each type of stock under assumptions (a) and (b). Express your answers in per-share amounts using the format shown below. (Round the rate of participation to 4 decimal places, e.g.1.4278%. Round answers to 2 decimal places, e.g. $6.85.) Assumptions (a) Preferred,...

Bonita Company has outstanding 2,600 shares of $100 par, 7% preferred stock and 16,400 shares of...

Bonita Company has outstanding 2,600 shares of $100 par, 7% preferred stock and 16,400 shares of $10 par value common. The following schedule shows the amount of dividends paid out over the last 4 years. Allocate the dividends to each type of stock under assumptions (a) and (b). Express your answers in per-share amounts using the format shown below. (Round the rate of participation to 4 decimal places, e.g.1.4278%. Round answers to 2 decimal places, e.g. $6.85.) Assumptions (a) Preferred,...

Question