+x Murray - 3/7/2009 12:58:27 PMJust looking at the value of the "dividends" themselves, in part a they distribute 25% of the company's value ($300M/$1200M). In part b they distribute 20% of the company's value (5M shares/25M shares). That's why the ex-dividend per share values are different.
Just looking at the value of the "dividends" themselves, in part a they distribute 25% of the company's value ($300M/$1200M). In part b they distribute 20% of the company's value (5M shares/25M shares).
That's why the ex-dividend per share values are different.
5.1c: $900 million / 20 million shares -> $45 per share
The value of the firm decreases in the cash dividend, but the stock holders have the same amount of money ($45/share + $15 dividend/share = $60/share)
5.2c: $1,200 million / 25 million shares -> $48 per share
The value of the firm stays the same, but the number of shares increase. The stock holder have the same amount of money in stock, due to their increased number of shares.
It's a mathematical consequence that decreasing the numerator here makes more of a difference, relative to increasing the denominator. I don't know if there is a way to explain it in Corporate Finance?
I'm not sure about this, but I think that, for 1, the market value would be the value of the firm before the dividend (a) minus the total dividend payment(b). This would give us an answer of (1200 - 300)/20 = 45 for C.
This seems correct since it is 75% of the original stock price, which meshes with the idea that dividend payments do not result in a net gain for the stockholders.
However, I would have thought that the resutant stock price in 2 would be 45 as well, but I also got 48. Does anyone have any ideas why the stock dividend did not decrease the stock price as much as the cash dividend?
Yes, 15.1 should say "before the cash dividend."
NEAS mentioned that it's allowed to study in a group and do homwork together. However, each student must submit his homework instead of submit a copy of the homework for the group. So, this imply that students can compare their homework to the extend that they want but have to write their own solutions.
So, it's ok to compare the homeworks to the extend that the students want.
15.1 C) Market Value after cash dividend = Stock market value before dividend - cash dividend = A) - B) = 900M
=> Value per share = 900M / 20M = $45
How did you get $45? I went about the cash dividend problem a few different ways and then got myself totally confused!