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    Dividend Policy Question and Answer

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    Bella Cynthia
    1. Corporate value is the intrinsic value of a company, while market value is the price of the company's shares on the stock market. 2. If corporate value is greater than market value, the company is said to be undervalued. If corporate value is less than market value, the company is overvalued. 3. The document provides calculations and examples of how to determine a company's corporate value based on factors like dividends, growth rates, costs of debt and equity, and compares it to the market value.

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    Dividend Policy Question and Answer

    Uploaded by

    Bella Cynthia
    109 views7 pages
    1. Corporate value is the intrinsic value of a company, while market value is the price of the company's shares on the stock market. 2. If corporate value is greater than market value, the company is said to be undervalued. If corporate value is less than market value, the company is overvalued. 3. The document provides calculations and examples of how to determine a company's corporate value based on factors like dividends, growth rates, costs of debt and equity, and compares it to the market value.

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    1. Corporate value is the intrinsic value of a company, while market value is the price of the company's shares on the stock market. 2. If corporate value is greater than market value, the company is said to be undervalued. If corporate value is less than market value, the company is overvalued. 3. The document provides calculations and examples of how to determine a company's corporate value based on factors like dividends, growth rates, costs of debt and equity, and compares it to the market value.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    109 views7 pages

    Dividend Policy Question and Answer

    Uploaded by

    Bella Cynthia
    1. Corporate value is the intrinsic value of a company, while market value is the price of the company's shares on the stock market. 2. If corporate value is greater than market value, the company is said to be undervalued. If corporate value is less than market value, the company is overvalued. 3. The document provides calculations and examples of how to determine a company's corporate value based on factors like dividends, growth rates, costs of debt and equity, and compares it to the market value.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 7

    Corporate Value > Market Value = Undervalue

    Corporate Value < Market Value = Overvalue

    a. Value of Equity = Dividend year 0 + Dividend Year 1 /


    200.000 + 1.200.000 / (1+10%)
    $ 1,290,909
    a. After tax costs of debt = Kd x (1-Tax)
    = 8% x (1-34%) b. Value of Equity = Dividend year 0 + Dividend Year 1 /
    5.28% 600.000 + (1.200.000-440.000) /(1+10%)
    $ 1,290,909
    b. Dividend = 2.05 Kcs = D1 / Pcs + g The new shares = 400.000
    Growth = 5% per year Kcs = 2.05 x ( 1+ 5%) / 25 + 5%
    Price stock = $25 = 13.61% Raise CS 400.000 x (1+ 10%)
    440000
    c.
    Face value 1000 = Rate(nper, pmt, pv, fv)
    Coupon rate 12% nper = years = 20
    Current price 1150 pmt = 120 (1000x12%)
    Years 20 pv = current price = -1150
    Tax rate 34% fv = face value = 1000
    PMT 120

    Rate formula 10.21% >> YTM (Kd)

    After tax cost of debt = Kd x (1-Tax)


    = 10.21% (1-34%)
    6.74%

    d. Dividend Ps = 100
    Percentage 7%
    Current price 85

    Kps = Div ps / P ps
    Kps = 100 x 7% / 85
    Kps = 8.24%
    Net Profit 15,320,000
    Dividend 3,800,000
    Forecast Net Profit 38,560,000
    d year 0 + Dividend Year 1 / (1+Ke)
    000 / (1+10%) Payout ratio Dividends/ Net Income
    Dividend = Net Income x Payout Ratio

    d year 0 + Dividend Year 1 / (1+Ke) Payout ratio (2016) 3,800,000


    000-440.000) /(1+10%) 15,320,000 24.80%

    Dividends 38.560.000 x 24.80%


    9,564,491
    What do you think the ex-dividend-date price of the company's shares will be?
    Stock price = PV of next dividend + PV of all future dividend
    $120 = $40 + PV of all future dividend
    PV of all future dividend = 120 - 40 = $ 80

    If the firm management is right about the stimulating effect of disgorging cash,
    do you think that the drop in stock price after the ex-dividend date will be smaller than
    otherwise expected? Why or why not?

    1. The underlying motivation for the large payout, it is possible that the stock price would
    not fall by $40.
    2. The firms had just admitted that its growth days are over, thus the price will probably
    fall by more than $40.

    Kingwood Corporation is considering paying a one time $40 dividend. Its current price is
    $120. We would expect, all else equal, for the firm's stock price to fall by $40 to $80 once
    the dividend's ex date passes.
    a. Dividend = $1.50 x 5000 shares $ 7,500 Equity 7,500
    Cash 7,500
    Equity berkurang 7500 ; Cash berkurang 7,500

    Cash 10500 Account payable 22000


    AR 22000 Notes Payable 5000
    Inventories 30000 Current liabilities 27000
    Current assets 62500 Long term debt 33000
    Fixed assets 130000 Equity 132500
    Total assets 192500 Total Liabilites & Capita 192500

    b. The effect after payment of the cash dividend the firm value has fallen by the amount of the dividend
    ($7500). If this were interpreted as a market value balance sheet, there would be no difference. The
    firm would still have $7500 less in cash. Since the value of each share of stock would have fallen by $1.50
    after the dividend payment, the total market value of stock held would still fall by $7.500.
    a. Times interest earned ratio = Net operating income / Interest expense
    2016
    Times interest earned ratio = 11.774.000 / 919.000 12.81175

    2015 a. Debt ratio =


    Times interest earned ratio = 10.469.000 / 830.000 12.61325 Interest bearing debt ratio

    2014 Debt ratio


    Times interest earned ratio = 9.166.000 / 711.000 12.8917

    b. In 2016, Home Depot earned enough operating income to pay its interest charges 12.81 times. Total assets = Total Liabiliti
    The comparable values for 2015 and 2014 are 12.61 and 12.89 times. While each of these
    values suggests that Home Depot is able to pay its debt obligation comfortably. Interest bearing debt ratio
    In 2014, having more obligation and less operating income is not a recipe of success.

    b. Debt - to - enterprise - v
    a. Debt ratio = Total Liabilities / Total Assets
    Interest bearing debt ratio = Interest-bearing debt / Total assets

    13,997,000
    46.51%
    30,095,000

    Total assets = Total Liabilities + Total Equity = (7.751.000+ 6.246.00) + 16.098.000 --> 30.095.000

    Interest bearing debt ratio = 6,246,000


    20.75%
    30,095,000

    b. Debt - to - enterprise - value ratio = Total Book Value of Interest - Bearing Debt
    Book Value of Interest Bearing Debt + Market Value of Equity
    6,246,000
    6,246,000 + 3,586,000
    63.53%
    CORPORATION VALUE = FIRM VALUE (PAGE 522)

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