Problem 1. Dividends and Taxes: Midland, Incorporated has declared a $6.50 per share dividend and the stock is about to go ex-dividend. Calculate the ex-dividend price based on the following data: Capital gains are not taxed. There is a 12 percent tax rate on dividends. Taxes must be withheld at the time the dividend is paid, according to new IRS regulations. Midland sells for $76 per share. Problem 2. Stock Splits and Stock Dividends: Billings Corporation (BC) currently has 365,000 shares of stock outstanding that sell for $72 per share. What will the share price be after: BC has a five-for-three stock split? BC has a 12 percent stock dividend? BC has a 45 percent stock dividend? BC has a five-for-seven reverse stock split? Problem 3. Dividend Smoothing: The Deck Company just paid a dividend of $1.55 per share of stock. Its target payout ratio is 45 percent. In one year, the company expects to have earnings per share of $7.10. If the adjustment rate is .4, as defined in the Lintner model, what will the dividend be one year from now? Problem 4. Stock Dividends: The market value balance sheet for Outland Manufacturing is shown in the table below. Outland has declared a 20 percent stock dividend. The stock goes ex-dividend tomorrow (chronology for a stock dividend is similar to that for a cash dividend). There are 45,000 shares of stock outstanding. Calculate the ex-dividend price.
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