1. After a 4-for-1 stock split, Perry Enterprises paid a dividend of $1.40 per n

Question

1. After a 4-for-1 stock split, Perry Enterprises paid a dividend of $1.40 per new share, which represents a 8% increase over last year's pre-split dividend. What was last year's dividend per share? Round your answer to the nearest cent.
$ ------

2. Lane Industries is considering three independent projects, each of which requires a $2.3 million investment. The estimated internal rate of return (IRR) and cost of capital for these projects are presented here:

Note that the projects' costs of capital vary because the projects have different levels of risk. The company's optimal capital structure calls for 40% debt and 60% common equity, and it expects to have net income of $4,400,000. If Lane establishes its dividends from the residual dividend model, what will be its payout ratio? Round your answer to 2 decimal places. %---------------

Currently, Meyers Manufacturing Enterprises (MME) has a capital structure consisting of 35% debt and 65% equity. MME's debt currently has a 7% yield to maturity. The risk-free rate (rRF) is 5%, and the market risk premium (rM – rRF) is 6%. Using the CAPM, MME estimates that its cost of equity is currently 11.6%. The company has a 40% tax rate.

a. What is MME's current WACC? Round your answer to 2 decimal places. Do not round intermediate calculations.
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Project H (high risk): Cost of capital = 14% IRR = 16% Project M (medium risk): Cost of capital = 10% IRR = 8% Project L (low risk): Cost of capital = 10% IRR = 11%

Explanation / Answer

Dividend per new share = $1.40

Equivalent dividend per old share = $1.40×4 = $5.60

Actual dividend for old share in last year:

= $5.60÷108%

= $5.19

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