Chapter 17
Problems 1-16
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
Chapter 17
Question 1
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Chapter 17
Question 2
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Chapter 17
Question 3
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Chapter 17
Question 4
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Chapter 17
Question 5
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Chapter 17
Question 6
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Repurchasing the shares will reduce
shareholders’ equity by 12,600.00$
Shares bought 320.61
The repurchase is effectively the same as the cash dividend because
you either hold a share worth 39.30$
or a share worth 37.90$ and 1.40$ in cash.
Therefore you participate in the repurchase according to the
dividend payout percentage; you are unaffected.
Shares outstanding 9,000
Dividend per share 1.40$
Cash 43,700$ Equity 353,700$
Fixed assets 310,000$
Chapter 17
Question 7
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Chapter 17
Question 8
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New shares issued 57,750
Capital surplus
for new shares 2,425,500$
Stock dividend 15%
Par value 1$
Common stock 385,000$
Capital surplus 846,000$
Retained earnings 3,720,800$
Chapter 17
Question 9
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The equity accounts are unchanged except
per share.
Dividends this year 1,155,000.00$
Last year’s dividend 1,050,000.00$
Stock split 4 for 1
Dividend 0.75$
Dividend increase 10%
Par value 1$
Common stock 385,000$
Capital surplus 846,000$
Retained earnings 3,720,800$
Chapter 17
Question 10
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Stock price in one year 50.43$
You want 27,966.28$
in one year but you
will only get 1,850.00$
You need to sell 517.82
shares at time 1.
Cash flow at time 1 27,966.28$
Cash flow at time 2 27,966.28$
Shares owned 1,000
Dividend per share 1.85$
Liquidating dividend 58$
Required return 15%
Chapter 17
Question 11
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Stock price in one year 50.43$
Dividend paid in year 2 1,850.00$
You will buy 21.81
shares at time 1.
PV of homemade dividend 45,465.03$
PV of current dividends 45,465.03$
Dividend desired in year 1 750.00$
Shares owned 1,000
Dividend per share 1.85$
Liquidating dividend 58$
Required return 15%
Chapter 17
Question 12
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a. Cash Dividend:
Shares repurchased 189.66
If you choose to let your shares be
in cash. If you keep your shares they are
still worth 58.00$
b. Cash Dividend:
preferred course of action. Only those
shareholders who wish to sell will do so,
giving the shareholder a tax timing option
that he or she doesn’t get with a dividend
Extra dividend 11,000$
Earnings per share 1.40$
Price per share 58$
Shares outstanding 2,000
Chapter 17
Question 13
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Growth rate 12.40%
Dividend yield 4.0%
Income tax rate 35%
Earnings growth rate 15%
Stock price growth rate 15%
Chapter 17
Question 14
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Personal tax rate 35%
Capital gains tax rate 35%
Chapter 17
Question 15
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Corporate investment in T-bills:
Corporate investment in preferred stock:
Aftertax corporate dividend 134,250.00$
Aftertax preferred
dividend yield 4.48%
FV of preferred investment 3,421,041.91$
Aftertax cash flow
If the company pays a dividend now:
Chapter 17
Question 16
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