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Finance Management-Week 10

Axel Telecommunications has a target capital structure of 70% debt and 30% equity. Its capital budget for the upcoming year is $3 million. With net income of $2 million and a residual dividend payout policy, Axel's dividend payout ratio will be 55%.

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247 views4 pages

Finance Management-Week 10

Axel Telecommunications has a target capital structure of 70% debt and 30% equity. Its capital budget for the upcoming year is $3 million. With net income of $2 million and a residual dividend payout policy, Axel's dividend payout ratio will be 55%.

Uploaded by

arwa_mukadam03
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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Axel Telecommunications has a target capital structure that

consists of 70% debt and 30% equity. The company anticipates that its capital budget for the
upcoming year will be $3,000,000. If Axel reports net income of $2,000,000 and it follows a
residual dividend payout policy, what will be its dividend payout ratio?

Debt 70%
Equity 30%

Cap Budget $ 3,000,000

Net Income $ 2,000,000

Cap Budget to be funded $ 900,000


by Equity

Need for Equity Cap $ 1,100,000

Div Pay out Ratio 55%


Gamma Medicals stock trades at $90 a share. The company is contemplating
a 3-for-2 stock split. Assuming that the stock split will have no effect on the market value
of its equity, what will be the companys stock price following the stock split?

P0 $ 90.00

P1 90/(3/2)
60 1.5

The price after stock-split is $60.00

0
Beta Industries has net income of $2,000,000, and it has
1,000,000 shares of common stock outstanding. The companys stock currently trades at
$32 a share. Beta is considering a plan in which it will use available cash to repurchase 20%
of its shares in the open market. The repurchase is expected to have no effect on net income
or the companys P/E ratio. What will be Betas stock price following the stock repurchase?

NI $ 2,000,000
P0 32

CAP Bud No OF Shares 200000


Cao Bud No of Amt 6400000

Current EPS NI/Nos of Shares


$ 2
P/E 16

NEW EPS $ 2.50


Price New $ 40.00
After a 5-for-1 stock split, Strasburg Company paid a dividend of
$0.75 per new share, which represents a 9% increase over last years pre-split dividend.
What was last years dividend per share?

g 9%
D 0.75

DIV Befor Split 3.75


Inc in Div 0.3375
Last Year DPS 3.4125

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