Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. 1. Assume that Xtel uses the entire $30 million to repurchase shares. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to pay a special dividend. As a result, you decide to create a “homemade” dividend. What is the number of shares that you would have to sell in order to receive the same amount of cash as if Xtel paid the special dividend? Briefly explain your workings. 2. Assume that Xtel uses the entire $30 million to pay a special dividend. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to repurchase shares. What is the number of shares that you would have to buy at ex-dividend price in order to undo the special cash dividend that Xtel paid? Briefly explain your workings.

Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. 1. Assume that Xtel uses the entire $30 million to repurchase shares. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to pay a special dividend. As a result, you decide to create a “homemade” dividend. What is the number of shares that you would have to sell in order to receive the same amount of cash as if Xtel paid the special dividend? Briefly explain your workings. 2. Assume that Xtel uses the entire $30 million to pay a special dividend. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to repurchase shares. What is the number of shares that you would have to buy at ex-dividend price in order to undo the special cash dividend that Xtel paid? Briefly explain your workings.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter23: Corporate Restructuring

Section: Chapter Questions

Problem 12P

See similar textbooks

Similar questions

Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. 1. Assume that Xtel uses the entire $30 million in excess cash to pay a special dividend. Calculate Xtelʹs ex-dividend price. Briefly explain your workings. 2. Assume that Xtel uses the entire $30 million to repurchase shares at a current share price. How many shares will Xtel repurchase? Briefly explain your workings.
Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. Assume that Xtel uses the entire $30 million to repurchase shares. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to pay a special dividend. As a result, you decide to create a “homemade” dividend. What is the number of shares that you would have to sell in order to receive the same amount of cash as if Xtel paid the special dividend? B
Xtel Inc. with a total market value of $630 million has $30 million in excess cash and no debt. Xtel has 1 million shares outstanding. Xtelʹs board is meeng to decide whether to pay out its $30 million in excess cash as a special dividend or to use it to repurchase shares of the firm’s stock. You own 1,000 shares of Xtel stock. Assume that Xtel uses the entire $30 million to pay a special dividend. You are unhappy with Xtelʹs decision and would prefer that Xtel used the excess cash to repurchase shares. What is the number of shares that you would have to buy at ex-dividend price in order to undo the special cash dividend that Xtel paid?
Executive Chalk is financed solely by common stock and has outstanding 25 million shares with a market price of $10 a share. It now announces that it intends to issue $160 million of debt and to use the proceeds to buy back common stock. a. How is the market price of the stock affected by the announcement? b. How many shares can the company buy back with the $160 million of new debt that it issues? Note: Enter your answer in millions. c-1. What is the market value of the firm (equity plus debt) after the change in capital structure? Note: Enter your answer in millions. c-2. Did the market value of the firm change? d. What is the debt ratio after the change in structure? Note: Round your answer to 2 decimal places. e. Who (if anyone) gains or loses? a. Effect on market price b. Shares repurchased c-1. Market value c-2. Did the market value of the firm change? d. Debt ratio e. Who (if anyone) gains or loses? Stock price remains the same. 160 million 250 million $ No 1.78 No one gains or…
Your corporation is evaluating declaring a cash dividend or declaring a share repurchase. In either case your corporation only has $10,000 to spend. Your corporation has 700 shares of stock outstanding that is currently selling for $55.00 per share. Please show your calculations in the space provided.What would be the amount of cash dividend per share if your corporation declares a cash dividend?
Plato Corporation’s board announces to pay $2 million excess cash to shareholders. At the announcement, the firm has no debt and 1 million shares outstanding with the market value of equity of $12 million. Assume that the markets are perfect. (i) What is the cum-dividend price? (ii) If the firm distributes the excess cash as a cash dividend, what is the exdividend price? Is the drop in share price the same as the cash dividend per share? Why? (iii) If the firm distributes the excess cash as a share repurchase, what will its share price once the shares are repurchased? (iv) If you hold 1,000 shares and the firm distributes the excess cash as a share repurchase in part (iii). How do you use homemade dividend to receive a cash dividend as in part (ii)?
A company has 1 million shares outstanding and earnings of $2 million. The company decides to use $10 million of unused cash to buy back shares on the open market. to buy back shares on the open market. The company's stock is trading at $50 per share. If the firm uses all of the $10 million of idle cash to buy back shares on the open market, the firm's shares trade at $50 per share. to buy back shares at market price, the company's earnings per share will be the highest share of the firm will be closest to : B. $2.30. C. $2.50. A. $2.00.
Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form of an extra dividend or a share repurchase. Current profits are R2,40 per share and the share sells for R20. The abbreviated balance sheet before paying out the dividend is: Equity 240 000 Bank/cash 90 000 Debt 160 000 Other Assets 310 000 400 000 400 000 Evaluate each alternative (i.e: pay the dividend or repurchase the shares) by:1.2 The dividends per share (for the first alternative, i.e. pay the dividend)
Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form of an extra dividend or a share repurchase. Current profits are R2,40 per share and the share sells for R20. The abbreviated balance sheet before paying out the dividend is: Equity 240 000 Bank/cash 90 000 Debt 160 000 Other Assets 310 000 400 000 400 000 Evaluate each alternative (i.e: pay the dividend or repurchase the shares) by: 1.1 Calculating the number of shares in issue 1.2 The dividends per share (for the first alternative, i.e. pay the dividend) ( 1.3 Calculate: 1.3.1 The new share price 1.3.2 The EPS ( 1.3.3 The price-earnings ratio
Your company, Ohiobucks (OB), hires an investment bank to underwrite an issue of 10 million shares of OB stock on a best-effort basis. The investment bank sells 8 million shares and charges OB $0.225 per share sold. The price of each share is $10.50. How much will the investment bank earn after the issuance? A. $7.0 MM B. $7.5 MM C. $1.8 MM D. $1.0 MM
1. Northstar Corporation is considering to pay $10,000 the shareholders. There are 1,000 shares outstanding and the current share price is $50, the current earnings are $20 per share. a. What is the ex-dividend price of Northstar' stock? b. How can Bob, who owns 50 shares of Northstar, achieve a zero payout policy on his own? c. How do the stock price and shares outstanding change if the company spend $10,000 to repurchase stocks rather than paying cash dividends? d. How the EPS and PE ratio change after the dividend payment and share repurchase, respectively? e. If the payout ratio remain consistent, the adjustment rate is 0.3 defined in the Lintner model, and this company expects to have an earnings per share of 25 for next year, what is the dividend one year from now?
Pukri Ltd is deciding whether to pay out R90 000 in excess cash in the form of an extra dividend or a share repurchase. Current profits are R2,40 per share and the share sells for R20. The abbreviated balance sheet before paying out the dividend is: Equity 240 000 Bank/cash 90 000 Debt 160 000 Other Assets 310 000 400 000 400 000 Evaluate each alternative (i.e: pay the dividend or repurchase the shares) by: 1.1 Calculating the number of shares in issue