Net profit of Harper Holding Ltd in the current year is $3,546,000. The company is planning to launch a project that will requires an investment of $1,045,000 next year. Today the company’s stock has market value of $72/share. Harper Holding Ltd has the current capital structure of 65% in equity and 35% in debt. Required:
- How much dividend can Harper Holding Ltd pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies.
- The company is paying a cash dividend of $5.50/share plus an extra-cash dividend of $2.5/share. Tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%?
- M&T Ltd. is a daughter company of the Harper Holding and currently under a liquidation plan due to severe business contraction. The company plans to pay total dividend of $8.5 million now and $ 12.5 million one year from now as a liquidating dividend. The required rate of return for shareholders is 12%. Calculate the current value of the firm’s equity in total and per share if the firm has 1.5 million shares outstanding?
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