Question

A company expects to have net income of $3,100,000 during the next year. Its target capital...

A company expects to have net income of $3,100,000 during the next year. Its target capital structure is 30% debt and 70% equity. The company has determined that the optimal capital budget for the coming year is $3,000,000. If Davis follows a residual distribution policy (with all distributions in the form of dividends) to determine the coming year’s dividend, then what is Davis's dividend payout ratio?

38.2%

51.6%

32.3%

19.2%

A company has just implemented a 1-for-10 reverse stock split. The stock responded positively to the news on the first day and its stock price increase 10% to $11 at the close. What’s the original price before the reverse stock split?

$10

$1.1

$1.0
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Answer #1

Part A:

Particulars Amount Calculation
Net Income $ 31,00,000.00 Given
Capital Budget $ 30,00,000.00 Given
Equity Share $ 21,00,000.00 3000000*70%
Div Payment $ 10,00,000.00 3.1 M - 2.1M
Payout Ratio                0.3226 Div/ Net Income

Part B:

Price after Increase = $ 11

Price before Increase = $ 11 * (100 / 110)

= $ 10

Price before reverse split = $ 10 * [ 1 / 10 ]

= $ 1

OPtion C is correct

Pls do rate, if the answer is correct and comment, if any further assistance is required.

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