Assessment Task – Tutorial Questions
Week 10
The Giant Machinery has the current capital structure of 65% equity and 35% debt. Its net income in the current year is $250,000. The company is planning to launch a project that will requires an investment of $175,000 next year. Currently the share of Giant machinery is $25/share.
Required:
- How much dividend Giant Machinery can pay its shareholders this year and what is dividend payout ratio of the company? Assume the Residual Dividend Payout Policy applies. (4 marks)
- If the company is paying a dividend of $2.50/share and tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%. (2 marks)
- Little Equipment for Hire is a subsidiary in the Giant Machinery and currently under the liquidation plan due to the severe contraction of operation due to corona virus. The company plans to pay total dividend of $2.5 million now and $ 7.5 million one year from now as a liquidating dividend.
The required rate of return for shareholders is 12%. Calculate the current value of the firm’s equity in total and per share if the firm has 1.5 million shares outstanding. (4 marks)
Breathe a Sign of Relief with our Academic Assistance: Get instant help, 100% personalized and accurate solutions that make your study life better.