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Dividend Payout and Stock Split Analysis

Axel Telecommunications has a target capital structure of 70% debt and 30% equity. Its capital budget for the upcoming year is $3 million. With net income of $2 million and a residual dividend payout policy, Axel's dividend payout ratio will be 55%.

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393 views4 pages

Dividend Payout and Stock Split Analysis

Axel Telecommunications has a target capital structure of 70% debt and 30% equity. Its capital budget for the upcoming year is $3 million. With net income of $2 million and a residual dividend payout policy, Axel's dividend payout ratio will be 55%.

Uploaded by

arwa_mukadam03
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd

Axel Telecommunications has a target capital structure that

consists of 70% debt and 30% equity. The company anticipates that its capital budget for the
upcoming year will be $3,000,000. If Axel reports net income of $2,000,000 and it follows a
residual dividend payout policy, what will be its dividend payout ratio?

Debt 70%
Equity 30%

Cap Budget $ 3,000,000

Net Income $ 2,000,000

Cap Budget to be funded $ 900,000


by Equity

Need for Equity Cap $ 1,100,000

Div Pay out Ratio 55%


Gamma Medicals stock trades at $90 a share. The company is contemplating
a 3-for-2 stock split. Assuming that the stock split will have no effect on the market value
of its equity, what will be the companys stock price following the stock split?

P0 $ 90.00

P1 90/(3/2)
60 1.5

The price after stock-split is $60.00

0
Beta Industries has net income of $2,000,000, and it has
1,000,000 shares of common stock outstanding. The companys stock currently trades at
$32 a share. Beta is considering a plan in which it will use available cash to repurchase 20%
of its shares in the open market. The repurchase is expected to have no effect on net income
or the companys P/E ratio. What will be Betas stock price following the stock repurchase?

NI $ 2,000,000
P0 32

CAP Bud No OF Shares 200000


Cao Bud No of Amt 6400000

Current EPS NI/Nos of Shares


$ 2
P/E 16

NEW EPS $ 2.50


Price New $ 40.00
After a 5-for-1 stock split, Strasburg Company paid a dividend of
$0.75 per new share, which represents a 9% increase over last years pre-split dividend.
What was last years dividend per share?

g 9%
D 0.75

DIV Befor Split 3.75


Inc in Div 0.3375
Last Year DPS 3.4125

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