FCF 9th Edition Chapter 17

8/13/2019 FCF 9th Edition Chapter 17

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Chapter 17Problems 1-16

Input boxes in tan

Output boxes in yellow

Given data in blue

Calculations in red

Answers in green

NOTE: Some functions used in these spreadsheets may require thatthe "Analysis ToolPak" or "Solver Add-in" be installed in Excel.

To install these, click on "Tools|Add-Ins" and select "Analysis ToolPakand "Solver Add-In."


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Chapter 17Question 1

Input Area:

Dividend per share 4.60$

Tax rate 15%

Price 80.37$

Output Area:

After-tax Dividend 3.91$

Ex-dividend price 76.46$


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Input Area:

Common stock 30,000$

Par value 1$

Capital surplus 285,000$

Retained earnings 649,180$

Total owners' equity 964,180$

a. Stock price 30$

Stock dividend 10%

b. Stock dividend 25%

Output Area:

a. New shares outstanding 33,000New shares issued 3,000

Capital surplus on new shares 87,000$

Common stock 33,000$Capital surplus 372,000$

Retained earnings 559,180$964,180$

b. New shares outstanding 37,500New shares issued 7,500

Capital surplus on new shares 217,500$


Capital surplus 502,500$Retained earnings 424,180$

964,180$


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Input Area:


Par value 1$

Capital surplus 285,000$

Retained earnings 649,180$

Total owners'Equity 964,180$

Stock price 30$

a. Stock split 4 for 1

b. Stock split 1 for 5

Output Area:

a. New shares outstanding 120,000

The accounts are unchanged except that

par value is now 0.25$

b. New shares outstanding 6,000

The accounts are unchanged except that

par value is now 5.00$


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Input Area:

Shares outstanding 350,000

Stock price 90.00$

a. Stock split 5 for 3

b. Stock divdend percent 15.00%

c. Stock divdend percent 42.50%

d. Stock split (shares) 4 for 7

Output Area:

a. Stock split 54.00$

b. Stock dividend 78.26$

c. Stock dividend 63.16$

d. Stock split 157.50$

e. a. New shares outstanding 583,333

b. New shares outstanding 402,500

c. New shares outstanding 498,750

d. New shares outstanding 200,000


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Input Area:


Dividend per share 1.30$

Market Value Balance Sheet

Cash 38,500$ Equity 308,500$

Fixed assets 270,000Total 308,500$ Total 308,500$

Output Area:

Price0 38.56$PriceX 37.26$

The equity and cash accounts will decline by: 10,400$


Cash 28,100$ Equity 298,100$

Fixed assets 270,000$Total 298,100$ Total 298,100$


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Input Area:

Repurchase 10,400$Shares outstanding 8,000Dividend per share 1.30$


Cash 38,500$ Equity 308,500$Fixed assets 270,000$Total 308,500$ Total 308,500$

Output Area:

Repurchasing the shares will reduceshareholders' equity by 10,400.00$Shares bought 269.69New shares outstanding 7,730.31

Price after repurchase 38.56$

The repurchase is effectively the same as the cash dividend becauseyou either hold a share worth 38.56$or a share worth 37.26$ and 1.30$ in cash.Therefore you participate in the repurchase according to thedividend payout percentage; you are unaffected.


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Input Area:

Stock dividend 25%



Cash 93,000$ Debt 131,000$

Fixed assets 509,000 Equity 471,000Total 602,000$ Total 602,000$

Output Area:

Price0 39.25$

New shares outstanding 15,000

PriceX 31.40$


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Input Area:

Stock dividend 15%Price 35$Par value 1$Common stock 406,000$Capital surplus 1,340,000$Retained earnings 3,427,000$Total owners' equity 5,173,000$

Output Area:

New shares outstanding 466,900

New shares issued 60,900Capital surplusfor new shares 2,070,600$

Common stock 466,900$Capital surplus 3,410,600$

Retained earnings 1,295,500$5,173,000$


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Input Area:

Stock split 4 for 1Dividend 0.85$Dividend increase 10%

Par value 1$Common stock 406,000$Capital surplus 1,340,000$Retained earnings 3,427,000$Total owners' equity 5,173,000$

Output Area:

The equity accounts are unchanged exceptthe new par value of the stock is 0.25$

per share.

Dividends this year 1,380,400.00$Last year's dividend 1,254,909.09$Dividends per share 3.09$


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Input Area:

Shares owned 1,000Dividend per share 2.30$Liquidating dividend 53$Required return 15%

Output Area:

Stock price today 42.08$

Equal dividend amount 25.88$

Stock price in one year 46.087$

You want 25,881.40$in one year but youwill only get 2,300.00$

You need to sell 511.67shares at time 1.

Cash flow at time 1 25,881.40$Cash flow at time 2 25,881.40$


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Input Area:

Dividend desired in year 1 750.00$Shares owned 1,000Dividend per share 2.30$Liquidating dividend 53$Required return 15%

Output Area:

Stock price in one year 46.087$Dividend paid in year 2 2,300.00$

You will buy 33.63shares at time 1.

Your dividend in year 2 is 54,782.50$

PV of homemade dividend 42,075.61$PV of current dividends 42,075.61$


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Input Area:

Extra dividend 9,000$Earnings per share 1.30$Price per share 64$Shares outstanding 1,000

Output Area:

a. Cash Dividend:DPS 9.00$Price per share 55.00$

The wealth of a shareholder who is

holding one share is 64.00$

Repurchase:

Shares repurchased 140.63If you choose to let your shares berepurchased, you have 64.00$in cash. If you keep your shares they arestill worth 64.00$

b. Cash Dividend:

EPS 1.30$

P/E 42.31

Repurchase:

EPS 1.51$

P/E 42.31

c. A share repurchase would seem to be thepreferred course of action. Only thoseshareholders who wish to sell will do so,giving the shareholder a tax timing optionthat he or she doesn't get with a dividendpayment.


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Input Area:

Dividend yield 5.0%Income tax rate 35%Earnings growth rate 15%Stock price growth rate 15%

Output Area:

Growth rate 11.75%

Pretax return 16.75%


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a. Personal tax rate 0%

Capital gains tax rate 0%

b. Personal tax rate 15%Capital gains tax rate 0%

c. Personal tax rate 15%Capital gains tax rate 30%

d. Corporate (with 70% exclusion)

Personal tax rate 35%

Capital gains tax rate 35%

Output Area:

a. P0 - PX= D

b. P0 - PX= 0.85 D

c. P0 - PX= 1.2143 D

d. P0- PX= 1.3769 D

e. Since different investors have widely tax rates

on ordinary income and capital gains, then

dividend payments have different aftertax

implications for different investors. This

differential taxation among investors is one

aspect of what we have called the clientele

effect.


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Extra cash 2,000,000$

Period for investment 3Treasury bill yield 5%Preferred stock yield 8%Dividend exclusion rate 70%Corporate tax rate 35%Individual income tax rate 31%Individual dividend tax rate 15%

Output Area:

If the company invests the money now:

Corporate investment in T-bills:

Aftertax T-bill yield 3.25%FV of investment 2,201,406.16$

Aftertax cash flow to shareholders 1,871,195.23$

Corporate investment in preferred stock:

Preferred stock dividends 160,000.00$Divdends excluded from tax 112,000.00$Taxable dividends 48,000.00$Tax on preferred dividends 16,800.00$

Aftertax corporate dividend 143,200.00$Aftertax preferred dividend yield 7.16%FV of preferred investment 2,461,093.48$

Aftertax cash flow to shareholders 2,091,929.46$


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If the company pays a dividend now:

Aftertax payment toshareholders 1,700,000.00$

Individual invests in Treasury bills:

Aftertax individual yield on T-bills 3.45%FV of T-bill investment 1,882,090.08$

Individual invests in preferred stock:

Preferred stock dividends 136,000.00$Tax on preferred dividends 42,160.00$

Aftertax preferred dividend 93,840.00$Aftertax preferred dividend yield 5.52%

FV of preferred investment 1,997,345.84$


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Extra cash 1,000$

Treasury bond yield 6%Corporate tax rate 35%

b. Preferred stock yield 9%Dividend exclusion rate 70%

Output Area:

a. Individual tax rate 35.00%

b. Individual tax rate 10.50%

Documents

FCF 9th Edition Chapter 17