Question

1.The Jacobson Corporation has earnings of $78 million, a target 65% equity ratio, and a capital budget for new projects of $87 million. How much of its earnings will Jacobson retain for investment in new projects? a. $55,000,000 b. $55,550,000 c. $56,000,000 d. $56,550,000 e. $57,000,000

How much will Jacobson in dividends payout to its shareholders?

2.Use the following information for problems 13, 14 and 15. Juan owns 300 shares of the ACME Corporation s common stock and the current market value of the shares is $42 per share. Therefore, the total value of Juan s holdings in ACME common stock is $12,600 (300 shares x $42). ACME has recently announced a 4 for 1 stock split. 13. After the stock split, how many shares of ABC will Juan have?

Barring any perceived signal of the stock split by investors, what would be the per share market value of ACME s shares after the stock split?

Barring any perceived signal of the stock split by investors, what will be the total market value of Juan s shares of ACME after the stock split?

Answer 1

1)Distribution = Earnings- [Capital investment * target equity ratio]

         = 78,000,000 - [87,000,000*.65]

         = 78,000,000 - 56,550,000

           = 21,450,000

earnings retained = 78,000,000- 21,450,000 = 56,550,000

correct option is "D"

dividends payout to its shareholders = $ 21,450,000

13)shares after stock split = 300*4 = 1200

14)per share market value =42*1/4= $ 10.5 per share

15)Total market value = 1200*10.5 =$ 12600