1-Poff Industries\' stock currently sells for $120 a share. You own 100 shares o
ID: 2735416 • Letter: 1
Question
1-Poff Industries' stock currently sells for $120 a share. You own 100 shares of the stock. The company is contemplating a 2-for-1 stock split. Which of the following best describes what your position will be after such a split takes place?
a.
You will have 200 shares of stock, and the stock will trade at or near $60 a share.
b.
You will have 100 shares of stock, and the stock will trade at or near $60 a share.
c.
You will have 50 shares of stock, and the stock will trade at or near $120 a share.
d.
You will have 50 shares of stock, and the stock will trade at or near $60 a share.
e.
You will have 200 shares of stock, and the stock will trade at or near $120 a share.
2- Rohter Galeano Inc. is considering how to set its dividend policy. It has a capital budget of $3,000,000. The company wants to maintain a target capital structure that is 15% debt and 85% equity. The company forecasts that its net income this year will be $3,500,000. If the company follows a residual dividend policy, what will be its total dividend payment?
a.
$205,000
b.
$500,000
c.
$950,00
d.
$2,550,000
e.
$3,050,000
a.
You will have 200 shares of stock, and the stock will trade at or near $60 a share.
b.
You will have 100 shares of stock, and the stock will trade at or near $60 a share.
c.
You will have 50 shares of stock, and the stock will trade at or near $120 a share.
d.
You will have 50 shares of stock, and the stock will trade at or near $60 a share.
e.
You will have 200 shares of stock, and the stock will trade at or near $120 a share.
Explanation / Answer
1) CORRECT ANSWER IS OPTION a) As one share will be splited into two share, no. of shares will be increased to twice and share price per share will be halved of the currennt share price.
a) You will have 200 shares of stock, and the stock will trade at or near $60 a share.
2) Capital budget $ 30,00,000.
Where, Debt part 15% i.e $ 4,50,000 and Equity part 85% i.e $ 25,50,000...
Therefore, Residual amount available for dividend payment = $ 30,00,000 - $ 25,50,000 = $ 9,50,000.
So, Correct answer is c. $ 9,50,000
a) You will have 200 shares of stock, and the stock will trade at or near $60 a share.
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