Finanças - cap 7 brealey

CHAPTER 16
Payout Policy

Answers to Problem Sets

1. a. A1, B5; A2, B4; A3, B3; A4, B1; A5, B2

b. On August 12, the ex-dividend date

c. (.35 X 4)/52 = .027, or 2.7%

d. (.35 X 4)/4.56 =.31, or 3.1%

e. The price would fall to 52/1.10 = $41.27

2. a. False. The dividend depends on past dividends and current and forecasted earnings.

b. True. Dividend changes convey information to investors.

c. False. Dividends are “smoothed.” Managers rarely increase regular dividends temporarily. They may pay a special dividend, however.

d. False. Dividends are rarely cut when repurchases are being made.

3. a. Reinvest 1,000 X $.50 = $500 in the stock. If the ex-dividend price is $150 - $2.50, this should involve the purchase of 500/147.50, or about 3.shares.

b. Sell shares worth 1,000 X $3 = $3,000. If the ex-dividend price is $200 – $5, this should involve the sale of 3,000/195, or about 15 shares.

4. Reduce repurchases by $10 million or issue new shares for $10 million.

5. a. Company value is unchanged at 5,000 X 140 = $700,000. Share price stays at $140. b. The discount rate r = (DIV1/P0) + g = (20/140) + .05 = .193. The price at which shares are repurchased in year 1 is 140 X (1 + r) = 140 X 1.193 = $167. Therefore the firm repurchases 50,000/167 = 299 shares. Total dividend payments in year 1 fall to 5,000 X 10 = $50,000, which is equivalent to 50,000/(5000 - 299) = $10.64 a share. Similarly, in year 2 the firm repurchases 281 shares at $186.52 and the dividend per share increases by 11.7% to $11.88. In each subsequent year, total dividends increase by 5%, the number of shares declines by 6% and, therefore, dividends per share increase by 11.7%. The constant growth model gives PV share = 10.64/ (.193 - .117) = $140. 6. a. $127.25.

b.