Exam 13: Dividends, repurchases, and Splits

On January 1,Year 1 you bought 100 shares of Cyberdyne Systems Inc.It is now January 1 of Year 2.You have recorded stock price and dividend information for Cyberdyne in the table,below.You want to calculate your return on the investment.After digging through your records you realize that Cyberdyne executed a 2-for-1 stock split late in Year 1.Use this information to adjust the data in the table and calculate the split-adjusted annual return on the investment in Cyberdyne shares. Selected Financial Data Cyberdyne Systems Inc.

Initek Co.'s stock trades for $12.50.Initek has too much cash.The CEO,Bill Lumberg,wants to distribute the excess cash with an open market stock repurchase.He is contemplating buying back $5.45M worth of shares at a price of $12.50.Initek is an all equity company with 20M shares outstanding.Pete Gibb owns 2 million shares in Initek.He purchased his shares before the repurchase for $12.50.If Pete sells the same proportion of shares as the company repurchases (and receives the same price that they pay),then what is his change in wealth from before to after the repurchase?

Kelly Varnsen,a junior financial analyst at Vandalay Industries,has been asked to calculate this year's dividend.Kelly has gathered the following data: CAPEX (spending on fixed assets)= $17,000 Increase in net working capital = $3,000 Target capital structure is 20% debt and 80% equity Net income is = $17,000. If Vandalay follows a residual dividend policy,then the dividend payout rate this year is:

Kaiser Shipyards Inc.is San Francisco-based ship builder which specializes in Liberty and Victory class cargo ships.The CEO,Henry Kaiser,wants to distribute $1B of cash using an open market stock repurchase.Assume that the company repurchases 11.650% of shares outstanding at a price of $62.725.What is the stock price after the repurchase? Kaiser Shipyards Inc. Selected Financial Information

The Cash Store Co.just repurchased 11.875 million shares at a price of $14.The stock was trading at a price of $16 prior to the repurchase,but a market correction gave the company an opportunity to repurchase at a lower price.There were 100 million shares outstanding prior to the repurchase.The stock is now trading for $16.27.What is the aggregate gain in value to all the shares that remain outstanding as a result of the repurchase? (Compare their value before the repurchase to their value after.)

Slate Rock and Gravel Co.sets its dividend using the target payout ratio policy.Selected financial data for Slate is available in the table below.What dividend should Slate Rock and Gravel offer for the coming year (Year 2)if it uses an adjustment factor of 1.0? Selected Financial Information Slate Rock and Gravel Co. Year 1

Willys-Overland Motors Inc.produces 4×4 quarter-ton trucks.Selected financial information for Willys-Overland is provided in the table below. The CEO,John Willys,wants to distribute $1B of cash using a stock repurchase.He intends to repurchase 15 million shares at a price of $70.Mr.Willys owns 22.5 million shares (worth $1,395 million before the repurchase).He does not plan to sell any of his shares during the repurchase.What is his wealth after the repurchase? Willys-Overland Motors Inc. Selected Financial Information

Stark Industries currently trades for $50 per share and has 175M shares outstanding.It announces that it will execute a reverse-split on a 1-for-3 basis.How many shares will be outstanding after the split?

On Thursday,February 7,Baretta Pistols Inc.declared a $0.75 per share dividend to be paid on Monday,April 15; the date of record will be Thursday,March 18.Baretta's stock closed $17.25 on the last cum-dividend date.What will the opening price be on the ex-dividend date? (Assume perfect markets.)

Tarbox Tobacco Inc.is an all equity company with 100M shares outstanding.Tarbox's stock last closed at $15.Tarbox has too much cash.The CEO,Walt Raleigh,wants to distribute the excess cash with an open market stock repurchase.He is contemplating buying back $225M worth of shares at a price of $15.Leaf Erickson owns 2 million shares in Tarbox.He purchased his shares before the repurchase for $15.If Leaf does not sell any shares during the repurchase,then what is his proportionate ownership afterwards?

The Baldwin Locomotive Works Inc.manufactures steam locomotives for North American railways.Selected financial information for Baldwin is provided in the table below.The CFO,Matthias Baldwin,wants to distribute $1B of cash by means of an extra dividend.What will the stock price be after the dividend? Baldwin Locomotive Works Inc. Selected Financial Information

Ewing Oil has $5B of excess cash and has announced an open market stock repurchase.Prior to the announcement,the stock was trading for $25 per share and there are 2.5B shares outstanding.Assume that the stock repurchase is executed at the pre-repurchase price.Sue Ellen has 100 shares of Ewing Oil.She bought the shares for $25 per share.Sue Ellen pays a tax rate of 20% on capital gains and 34% on dividends.What is Sue Ellen's after-tax wealth if she sells the same proportion of shares as Ewing repurchases,and that she receives the same price that Ewing pays? Assume that Sue Ellen sells her remaining shares after the repurchase at the price that prevails after the repurchase.

Some investors think that Prestige Entertainment's repurchase program was a bad deal for shareholders,because the company paid too much for its repurchased shares.Before the repurchase,the company's shares traded for $13.15.Over the last quarter,Prestige repurchased 804.22 million shares (7% of shares outstanding)at an average price of $15.066 per share.Shares outstanding are now 10,684.64M.Calculate the stock price after the repurchase.If you bought 100 shares prior to the repurchase and sold those shares afterwards,then what is your profit (loss)on the investment?

Cripple Creek Distilleries Inc.is an all equity company with 20M shares outstanding.It's stock last closed at $20.Cripple Creek has too much cash.The CEO,Levon Helm,wants to distribute the excess cash with an open market stock repurchase.He is contemplating buying back $5M worth of shares at a price of $20.What will the stock price be after completion of the repurchase?

Acme Explosives Inc.is an international producer of creative demolition products.Selected financial information for Acme is provided in the table below.Acme wants to distribute all of its cash with an open market repurchase.Assume that Acme is able to buy back 1,064,377,778 shares for an average price of $27 per share.What is Acme's stock price after the repurchase? Selected Financial Information For Acme Corporation

Last month,Springfield Power Co.announced that shareholders of record on this coming Friday will receive a dividend of $2.75 per share.(Assume that the dividend will also be paid on Friday.)After this Friday,the next dividend is expected in one year's time.Dividends are expected to be paid annually in perpetuity and are expected to grow at a rate of 5%.Shareholders of Springfield Power Co.require a 12.5% return on equity.What is the stock price of Springfield Power on Tuesday? (Preceding the Friday Day of Record.)

On Friday,January 4,Oceanic Airlines declared a $0.75 per share dividend to be paid on Monday,March 11; the date of record will be Friday,February 15.What is Oceanic's ex-dividend date?

Last month,Springfield Power Co.announced that shareholders of record on this coming Friday will receive a dividend of $4.5 per share.(Assume that the dividend will also be paid on Friday.)After this Friday,the next dividend is expected in one year's time.Dividends are expected to be paid annually in perpetuity and are expected to grow at a rate of 5%.Shareholders require a 13% return on equity.What is the stock price of Springfield Power on Wednesday? (Preceding the Friday Day of Record.)

Ewing Oil repurchased $5.10B worth of shares during the year at an average price of $30.Cliff Barnes owned 0.15B shares in Ewing prior to the repurchase.Cliff decided not to sell any shares during the repurchase.What was Cliff's proportionate ownership in Ewing following the repurchase? Ewing Oil Inc. Selected Financial Information

Morty Seinfeld owns 100 shares in a tobacco company called Tarbox.Morty brags about its steady,annual dividend of $1.25 per share.You are jealous of the dividend but philosophically opposed to "sin" companies,so you can't buy the stock.Instead,you have identified the Paper Street Soap Factory (PSSF)which is developing a new biodegradable bath soap.The company plans to begin paying an annual dividend of $1.25 starting in three years.Stockholder in both companies require a return of 8%.A stock price and dividend forecast for the two companies is provided in the table.(Assume that dividends are paid in perpetuity.)Your plan is to buy shares in PSSF today,sell some at Year 1,some at Year 2 and then hold the remainder in perpetuity.How many shares do you have to buy today in order to earn the same annual income as Morty?