Net profit of Green Forest Ltd in the current year is $2,355,000. The company is planning to launch a project that will requires an investment of $ 945,000 next year. The common stock of the company goes ex-dividend tomorrow. The stock closed at a price of $35.65 per share today. The company is paying a cash dividend of $4.50 a share and an extra cash dividend of $1.5 a share. a) Calculate the net profit available for dividend payment and dividend payout ratio of the company, assuming the capital structure of the company is 60% equity funding, 40% debt funding, using the Residual Dividend Payout Policy. b) Assuming the tax rate on dividends is 25%. Calculate the ex-dividend price tomorrow c) Blue Valley Ltd, a subsidiary of Green Forest Ltd will go under liquidation procedures due to the recent global economic recession in one-year time. The company just announced today it will be paying an annual dividend totally $7.5 million this year and $12.5 million one year from now as a liquidating dividend. The company plans to raise $ 6 million to fund the business operation within 1 year by issuing new shares. The required rate of return for shareholders is 11.5%. Calculate the current value of the firm’s equity in total and per share if the firm has 2.5 million shares outstanding before issuing new shares

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 5P

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Net profit of Green Forest Ltd in the current year is $2,355,000. The company is planning to launch a project that will requires an investment of $ 945,000 next year. The common stock of the company goes ex-dividend tomorrow. The stock closed at a price of $35.65 per share today. The company is paying a cash dividend of $4.50 a share and an extra cash dividend of $1.5 a share.

a) Calculate the net profit available for dividend payment and dividend payout ratio of the company, assuming the capital structure of the company is 60% equity funding, 40% debt funding, using the Residual Dividend Payout Policy.

b) Assuming the tax rate on dividends is 25%. Calculate the ex-dividend price tomorrow

Blue Valley Ltd, a subsidiary of Green Forest Ltd will go under liquidation procedures due to the recent global economic recession in one-year time. The company just announced today it will be paying an annual dividend totally $7.5 million this year and $12.5 million one year from now as a liquidating dividend. The company plans to raise $ 6 million to fund the business operation within 1 year by issuing new shares. The required rate of return for shareholders is 11.5%.

Calculate the current value of the firm’s equity in total and per share if the firm has 2.5 million shares outstanding before issuing new shares.

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