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- Mama Inc. utilizes the residual dividend model to determine its ordinary dividend payout. This year the company expects its net income to be P2,000,000, and it expects to retain 75% of the income. The company’s target ordinary equity ratio is 40%, and the firm is financed with only ordinary equity and debt. 1. How much is the addition to retained earnings? 2. What is the plow back ratio? 3. What is the company’s forecasted total capital budget for the year?James Madison Ltd. expects a net income of 200,000. The company has 5% of 1,000,000 bonds payable. The equity capitalization rate of the company is 20%. (a) Calculate the value of the firm and average cost of capital according to the net income approach (ignoring income tax).The target payout ratio for Dynamic Super Machines Ltd. is 0.4. The dividend per share for the current year is Rs. 14. The dividend per share in previous year was Rs. 12. The weightage given to the current year earning is 0.60. The number of equity share outstanding in the company is 10,00,000. If P/E multiple is 9, applying Linter MODEL of dividend policy to the company, compute the market capitalization of the company.
- Walter and Gordon model analyse the impact of distribution of dividends on thevaluation of the firm but the formula used in both the cases are different. Company ABC Ltd wanted to evaluate the price of the share in both cases. The company earns ₹50 per share and expects the same for the next year. The cost of capital to the firm is11%. The company earns return on investment of 15% and the firm is planningdividend payout ratio of 60%. Calculate: Calculatea. Price of the share using Walter Model. Comment on the relationship between return oninvestment and cost of capital in the case above and decision of the firm whetherdividend is to be declared or not.The investment banking firm of Stan Inc. will use a dividend valuation model to appraise the shares of the DB Corporation. Dividends (D) at the end of the current year will be P1.20. The growth rate (g) is 9% and the discount rate (K) is 13%?As the assistant to the CFO of Johnstone Inc., you must estimate its cost of common equity. You have been provided with the following data: D0 = $0.80; P0 = $22.50; and gL = 8.00% (constant). Based on the dividend growth model, what is the cost of common from reinvested earnings? 10.69% 11.25% 11.84% 12.43% 13.05%
- A company expects to generate the following net income and incur the following capex in the next five years: Rs. Lakhs Year 1 2 3 4 5 Net Profit 75 80 85 90 100 Capex 40 45 50 50 60 The total number of outstanding shares are 10,00,000 and the current dividend is Rs.4.50 per share. QUESTIONS : Determine the dividend if the firm follows a pure residual dividend policy Determine the external financing needed if the current dividend is maintained Determine the external financing required if the company maintains a 50% dividend pay-out ratio Under which of the above is the external requirement of funds maximized? Which method of dividend payment do you advocate for this firm?Alpha Corporation has average annual free cashflows to the equity holder and to the firmof P3,000,000 and P3,350,000 respectively. Assuming that the weighted average cost ofcapital and actual return of on assets is 16.75% while the market return on Alpha's debt is7%, what is the value of its equity? a. P34,358,974.36 b.P15,000,000.00 c.P17,910,447.76 d.P20,000,000.00A. ABC Corp., expects a net income of Php. 250,000. The company has 10% of 5,000,000 Debentures. The equity capitalization rate of the company is 10%. 1. Calculate the value of the firm and overall capitalization rate according to the net income approach (ignoring income tax). 2. If the debenture debt is increased to Php. 750,000 and interest of debt is change to 8%. What is the value of the firm and overall capitalization rate?
- Hornberger, Inc. recently paid a dividend of $2.00 per share. The next dividend is expected to be $2.05 per share. Hornberger has a return on equity of 12.00%. What percentage of its earnings does Hornberger plow back into the firm? (Round your answer to 2 decimal places.) Plowback ratio %1. The Dumaguete Co. has an equity cost of capital of 17%. The debt to equity ratio is 1.5 and a cost of debt is 11%. What is the weighted average cost of capital of the firm? (Assume a tax rate of 33%) a. 15.52% b. 3.06% c. 13.40% d. 16.97% 2. Metrobank’s stock is currently trading at P25 per share. The stock’s dividend is projected to increase at a constant rate of 7 percent per year. The required rate of return on the stock is 10 percent. what is the stock’s dividend yield today? a. cannot be determined from the information provided b. 3% c. 10% d. 7% 3. What is the expected rate of return on a bond that pays a coupon rate of 9%, has a par value of P1,000, matures in five years, and is currently selling for P714? Round your answer to the nearest whole percent and assume annual coupon payments. a. 13% b. 18% c. 16% d. 17%A company has an EPS of US$12 per share. It pays out its entire earnings as dividend. It has a growth rate of zero and a required return on equity of 8 percent per annum. Assuming all cashflows are perpetuities, what will be the price of the company’s stock?Select one: a. USD150.00b.USD83.43c.USD85.00d.USD155.00
