Finance Question

A firm is all equity financed with 10,000 outstanding shares with a market value of $20 each. Its net income was $30,000 and it decides to pay a cash dividend of $2000. Calculate the value of each share after the dividend payout.

 

a. $22.8

Save your time - order a paper!

Get your paper written from scratch within the tight deadline. Our service is a reliable solution to all your troubles. Place an order on any task and we will take care of it. You won’t have to worry about the quality and deadlines

Order Paper Now

b. $20

c. $19.8

d. not enough information

 

Grandma’s Applesauce, Inc. has a 0.60 probability of a good year with operating cash flow of $50,000 and 0.40 probability of a bad year with operating cash flow of $30,000.  The company has a debt of $35,000 with 8 percent interest due next year.  Assuming the company has no means of servicing its debt other than operations, and a 0% tax rate, which of the following is true?

 

a. Shareholders expected claim is $12,200

b. Creditors expected claim is $37,800

c. Creditors expected claim is $35, 680

d. None of the above

 

The owners of a firm facing a high probability of bankruptcy prefer to invest in ____ projects, because ____.

a. safer; riskier projects make bankruptcy more likely

b. no new; the firm is likely to go bankrupt anyway

c. risky; the shareholders have little to lose and might win if successful

d. risky; creditors prefer taking a gamble rather than having the company default

 

You are trying to decide whether to accept or reject a one-year project.  The project is estimated to generate $5,000 in incremental gross profit, which includes $200 in depreciation.  Incremental SG&A expense is $400.  At a 35% tax rate, the after-tax incremental cash flow is:

 

a. $2,990

b. $3,190

c. $3,250

d. $3,510

 

What is the present value of a growing perpetuity that makes a paymet of $100 in the first year, which thereafter grows at 3% per year? Apply a discount rate of 7%.

 

a. 2,000

b. 3,500

c. 2,500

d. 4,000

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *