Fin 620 Final Examination Solution

FIN 620 Final Examination Solution

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FIN 620 Final Examination Solution

1. Problem 19-4 Stock Splits and Stock Dividends

Roll Corporation (RC) currently has 330,000 shares of stock outstanding that sell for $64 per share. Assuming no market imperfections or tax effects exist, what will the share price be after:

a. RC has a five-for-three stock split? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

New share price $

b. RC has a 15 percent stock dividend? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

New share price $

c. RC has a 42.5 percent stock dividend? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

New share price $

d. RC has a four-for-seven reverse stock split? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

New share price $

e. Determine the new number of shares outstanding in parts (a) through (d). (Do not round intermediate calculations and round your answers to the nearest whole number. (e.g., 32))

a. New shares outstanding

b. New shares outstanding

c. New shares outstanding

d. New shares outstanding

2. Problem 19-16 Dividend Smoothing

The Sharpe Co. just paid a dividend of $1.80 per share of stock. Its target payout ratio is 40 percent. The company expects to have an earnings per share of $4.95 one year from now.

a. If the adjustment rate is .3 as defined in the Lintner model, what is the dividend one year from now? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Dividend $

b. If the adjustment rate is .6 instead, what is the dividend one year from now? (Do not round intermediate calculations and round your final...