02 Jan Suppose you and the
Question 1
10 / 10 pts
RRM Incorporated has just declared a dividend of $7.50 per share. The tax rate of dividends is 15 percent. The tax rate on capital gains is zero. The tax laws require the taxes to be withheld when the dividend is paid. RRM currently sells for $83 per share and the stock is about to go ex-dividend. What do you calculate the ex-dividend price will be?
76.63
75.50
76.93
Question 2
0 / 10 pts
The firm you are CEO if has a current period cash flow of 1.75 million and pays no dividend. The present value of the company’s future cash flows is $25.0 million. The company is entirely financed with equity and there are 500,000 shares outstanding. Assume the dividend tax rate is zero.
What is the share price of your firm?
Suppose you and the board announce a plan to pay out 40 percent of the current cash flows as a dividend to its shareholders. How can a shareholder, who owns 1000 shares, achieve a zero pay-out policy on their own?
Share price = $53.50, purchase 26.87 shares
Share price = $50.00, purchase 28.81 shares
You did not calculate the current share price correctly. I should be the (current period cash flows + pv of future cash flows)/shares outstanding
Share price = $53.50, purchase 26.17 shares
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