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564 Brooks ◼ Financial Management: Core Concepts, 4e
4. Stock price around dividend. Jenny plans to sell 200 shares of ExxonMobil stock. ExxonMobil
has just declared a $0.45 cash dividend per share payable in forty days to registered owners
twenty days from now. If on the ex-date the price of ExxonMobil is $61.55 per share, show
the total proceeds and the source of the proceeds to Jenny if she sells on the day before the
ex-date and if she waits until after the ex-date. Assume a world of no taxes.
5. Dividend pattern. Refer to Table 17.2, and predict the next four quarterly dividends using a
percentage change pattern, a dollar change pattern, and your expectation given the actual
pattern change.
ANSWER
Dollar Change Method:
Chapter 17 ◼ Dividends, Dividend Policy, and Stock Splits 565
Average change
Chapter 17 ◼ Dividends, Dividend Policy, and Stock Splits 567
© 2018 Pearson Education, Inc.
Geometric mean (four dividend changes)
= [($0.47/$.3 8)] ^ (1/4) – 1 = 5.4578%
Expected Dividend = $0.47(1.054578) $0.4956 ($.50)
Dollar Change Method:
Average change
$0.03 $0.03 $0.03 $.03 $0.03
4
+++
=
Expected Dividend = $0.47 + $0.03 = $0.50
Repeats previous dividend
Expected Dividend = $0.47 + $0.03 = $0.50
Chapter 17 ◼ Dividends, Dividend Policy, and Stock Splits 569
© 2018 Pearson Education, Inc.
c. Desired level of dividends: $80,000
Carmen must sell shares equal to: $20,000/ ($25.20 – $0.20) = 800 shares
Wealth = $80,000 cash + $ 7,480,000 [(300,000 – 800 shares) × $25.00] paper = $7,560,000
9. Change to low-dividend-payout policy. Scott currently owns 500 shares of Twelve Colonies,
Inc. Twelve Colonies has a high-dividend-payout policy, and this year will pay $2.00 cash
dividend on its shares, which are selling currently at $18.00. Scott wants a low-dividend-
payout policy of 2% of the stock price. What will Scott need to do to convert this high-
dividend policy to a low-dividend policy for himself? Assume a world of no taxes.
ANSWER
Current dividend policy: ($2.00/$18.00) = 11.1111% (500 shares × $2.00) $1,000 Div
10. Change to high-dividend-payout policy. Kevin currently owns 800 shares of Cylon, Inc. Cylon
has a low-divided-payout policy, and this year will pay $0.35 cash dividend on its shares,
which are selling currently at $21.00. Kevin wants a high-dividend policy of 6% of the stock
price. What will Kevin need to do to convert this low-dividend-payout policy to a high-
dividend-payout policy for himself? Assume a world of no taxes.
ANSWER
570 Brooks ◼ Financial Management: Core Concepts, 4e
© 2018 Pearson Education, Inc.
$1,008 cash + $ 15,792 [$20.65 × (800 – 35.254237 shares)] paper = $16,800
Low dividend policy:
$280 cash + $ 16,520 ($20.65 × 800 shares) paper = $16,800
572 Brooks ◼ Financial Management: Core Concepts, 4e
© 2018 Pearson Education, Inc.
($.56325 × 40.214444 shares) < $22.65 >
Cash = $1,008.00
Paper (800 – 40.214444) $20.755 $15,769.35
Wealth $16,777.35
Change in value $16,800.00 – $16,777.35 = $22.65 ($0.56325 × 40.214444)
The decrease in value is due to the capital gains tax imposed from the sale of shares.
