Corporate Finance Lecture Note Packet 2 Capital Structure‚ Dividend Policy and Valuation B40.2302 Aswath Damodaran Aswath Damodaran! 1! Capital Structure: The Choices and the Trade off Neither a borrower nor a lender be Someone who obviously hated this part of corporate finance Aswath Damodaran! 2! First Principles Aswath Damodaran! 3! The Choices in Financing There are only two ways in which a business can make money.
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(10 points) The Duo Growth company just paid a dividend of $1 per share. The dividend is expected to grow at a rate of 25% per year for the next two years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 20% per year. a. What is your estimate of the intrinsic value of a share of the stock? b. If the market price of a share is equal to this intrinsic value what is the expected dividend yield? c. What do you expect its price to be in
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growth in dividends • Forecasted dividends for the next several years plus sale of the stock in the future • The three-stage dividend model • The price/earnings approach 3.1.1 The perpetual growth in dividends The standard method of finding stock price for perpetual dividends for a firm‚ given the firms dividend one year into the future and an expected growth rate for the dividend‚ is as follows: P0 = D1 (Ke − g) where Ke is the investors’ required return‚ D1 is next year’s dividend and g is
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acquire the information from the investee‚ or (e) the investor tries and fails to gain representation on the board of directors. Q2-4 The balances will be the same at the date of acquisition and in the periods that follow whenever the cumulative dividends paid by the investee equal or exceed the investee’s cumulative earnings since the date of acquisition. The latter case assumes there are no other
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If a corporation has substantial E & P and pays only a nominal dividend eachyear‚ a constructive dividend may be found f. Year-end bonuses would be vulnerable to constructive dividend treatment‚ particularly if they are related to profit for the year‚ are paid only to shareholder-employees‚ and are determined at year-end on an arbitrary basis. 31. a. Capon reports the $600‚000 dividend as gross income but claims a dividends received deduction under § 243 of $420‚000 (70% × $600‚000).
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value of $240‚000; and land with an appraised value of $320‚000. Purchased 750 shares of common stock at $26 per share. (Use cost method.) Sold the 750 treasury shares at $27 per share. Declared a $0.10 per share cash dividend on the common stock and declared the preferred dividend. Closed the Income Summary account. There was a $96‚900 net income. Instructions (a) Record the journal entries for the transactions listed above. (b) Prepare the stockholders’ equity section of Alligator Corporation’s
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Relevant Facts Xerox‚ a New York corporation‚ owned directly and indirectly the majority of the voting shares of RXL‚ a corporation of the United Kingdom. In 1974‚ the tax year here at issue‚ RXL paid a dividend distribution to Xerox and paid the requisite ACT in the United Kingdom on the distribution. A portion of that ACT was set off in 1974 against RXL’s mainstream corporation tax in the United Kingdom. The foreign tax credit for that portion of the 1974 ACT is not in dispute. The portion of
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solving for dividends‚ it is helpful to review the basic equation used to determine ending stockholders’ equity. Ending stockholders’ equity = Beginning stockholders’ equity + Change in stockholders’ equity • Changes in stockholders’ equity are the result of the company issuing additional stock‚ net income or net loss from operating the business‚ and the declaration or payment of dividends to stockholders. Change in stockholders’ equity = Issuance of stock + Net income - Dividends • +There
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quarterly dividend of $0.05/share and use any additional funds to repurchase shares to increase shareholder value. This kept their payout ratio to around 15% until about 2002 where this dividend payout moved the ratio to around 25% to 30%. Currently Linear is sitting on a large amount of cash ($1.5b) that they are investing in very low return securities. They currently don’t have any investment opportunities available so they are considering using this money to payout a one time dividend. 2. The
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for not doing the stock repurchase with added Debt? Repurchasing stock is not the only way that CPK can take. According to exhibit 7‚ there is no cash or stock dividend share in CPK. Therefore‚ CPK can issue more dividends. This would decrease the company’s equity‚ potentially decreasing the rate of growth‚ however the payment of dividends would be
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