Question
In: Accounting
3. Cabot Vineyards has been paying a regular cash dividend of $4.80 per share each year...
3. Cabot Vineyards has been paying a regular cash dividend of
$4.80 per share each year for over a decade. The company is paying
out all its earnings as dividends and is not expected to grow.
There are 118,000 shares outstanding selling for $80 per share. The
company has enough cash on hand to pay the next annual
dividend.
Suppose that Cabot announces today that starting a year from
now, it will cut its cash dividend to zero and will use the cash to
repurchase shares instead.
a. What is the immediate stock price reaction? Ignore taxes
and assume that the repurchase program conveys no information about
operating profitability or business risk.
b. How many shares will Cabot re-purchase?
c. Project and compare future stock prices for the old and new
policies for the next 3 years. What is the annual return to
shareholders under each of the policies? (10 points)
Solutions
ekkarill92 answered 1 year agoRelated Solutions
Cabot Vineyards has been paying a regular cash dividend of $4.80 per share each year for...
Cabot Vineyards has been paying a regular cash dividend of $4.80
per share each year for over a decade. The company is paying out
all its earnings as dividends and is not expected to grow. There
are 118,000 shares outstanding selling for $80 per share. The
company has sufficient cash on hand to pay the next annual
dividend.
Suppose that, starting in year 1, Cabot decides to cut its cash
dividend to zero and announces that it will repurchase shares...
Cabot Vineyards has been paying a regular cash dividend of $4.80 per share each year for...
Cabot Vineyards has been paying a regular cash dividend of $4.80
per share each year for over a decade. The company is paying out
all its earnings as dividends and is not expected to grow. There
are 118,000 shares outstanding selling for $80 per share. The
company has sufficient cash on hand to pay the next annual
dividend.
Suppose that, starting in year 1, Cabot decides to cut its cash
dividend to zero and announces that it will repurchase shares...
Hors d’Age Cheeseworks has been paying a regular cash dividend of $4.80 per share each year...
Hors d’Age Cheeseworks has been paying a regular cash dividend
of $4.80 per share each year for over a decade. The company is
paying out all its earnings as dividends and is not expected to
grow. There are 111,000 shares outstanding selling for $80 per
share. The company has sufficient cash on hand to pay the next
annual dividend at t = 1.
Suppose that, starting in year 1, Hors d’Age decides to cut its
cash dividend to zero and...
A company has been paying a regular cash dividend of $4.00 per share each year. It...
A company has been paying a regular cash dividend of $4.00 per
share each year. It pays out all of its earnings as dividends and
is not expected to grow. There are 100,000 shares outstanding
trading for $80.00 per share after the payment of the $4.00 per
share dividend (i.e., after the ex-dividend date; prior to the
ex-dividend date, the price included the value of the dividend
payment). The company has enough cash on hand to pay dividends.
Suppose that...
Hors d’Age Cheeseworks has been paying a regular cash dividend of $4.00 per share each year...
Hors d’Age Cheeseworks has been paying a regular cash dividend
of $4.00 per share each year for over a decade. The company is
paying out all its earnings as dividends and is not expected to
grow. There are 121,000 shares outstanding selling for $80 per
share. The company has sufficient cash on hand to pay the next
annual dividend.
Suppose that, starting in year 1, Hors d’Age decides to cut its
cash dividend to zero and announces that it will...
Hors d’Age Cheeseworks has been paying a regular cash dividend of $4.25 per share each year...
Hors d’Age Cheeseworks has been paying a regular cash dividend
of $4.25 per share each year for over a decade. The company is
paying out all its earnings as dividends and is not expected to
grow. There are 122,000 shares outstanding selling for $85 per
share. The company has sufficient cash on hand to pay the next
annual dividend at t = 1. Suppose that, starting in year 1, Hors
d’Age decides to cut its cash dividend to zero and...
Hors d’Age Cheeseworks has been paying a regular cash dividend of $4 per share each year...
Hors d’Age Cheeseworks has been paying a regular cash dividend
of $4 per share each year for over a decade. The company is paying
out all its earnings as dividends and is not expected to grow.
There are 100,000 shares outstanding selling for $80 per share. The
company has sufficient cash on hand to pay the next annual
dividend. Suppose that, starting in year 1, Hors d’Age decides to
cut its cash dividend to zero and announces that it will...
Please answer (d) and (e) A company has been paying a regular cash dividend of $4.00...
Please answer (d) and (e)
A company has been paying a regular cash dividend of $4.00 per
share each year. It pays out all of its earnings as dividends and
is not expected to grow. There are 100,000 shares outstanding
trading for $80.00 per share after the payment of the $4.00 per
share dividend (i.e., after the ex-dividend date; prior to the
ex-dividend date, the price included the value of the dividend
payment). The company has enough cash on hand...
JJ Industries will pay a regular dividend of $2.4 per share for each of the next...
JJ Industries will pay a regular dividend of $2.4 per share for
each of the next four years. At the end of the four years, the
company will also pay out a liquidating dividend of $53 per share,
and the company will cease operations. If the discount rate is 8
percent, what is the current value of the company’s stock?
JJ Industries will pay a regular dividend of $2.4 per share for each of the next...
JJ Industries will pay a regular dividend of $2.4 per share for
each of the next four years. At the end of the four years, the
company will also pay out a liquidating dividend of $74 per share,
and the company will cease operations. If the discount rate is 13
percent, what is the current value of the company’s stock?
(Do not round intermediate calculations. Round your answer to 2
decimal places.)
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