Homework answers / question archive / El Pais, a Spanish language daily newspaper, has asked you as expert in Business finance to write a column on their financial section

El Pais, a Spanish language daily newspaper, has asked you as expert in Business finance to write a column on their financial section

Finance

Share With

El Pais, a Spanish language daily newspaper, has asked you as expert in Business finance to write a column on their financial section. You are tasked  with some questions from the readers of the newspaper that deal with dividends. Please write the column answering the questions.

Question 1: Johana Alfredo, a woman of 45 years old owns 8 percent of the BBVA Corporation’s 30,000 shares of common stock, which most recently traded for a price of $98 per share. The company has since declared its plans to engage in a two-for-one stock split.

1. What will her financial position be after the stock split, compared to her current position? (Hint: Assume the stock price falls proportionately.)
2. An expert of finance believes the price will not fall in proportion to the size of the split and will only fall 45 percent because she thinks the pre-split price is above the optimal price range. If she is correct, what will be Johana’s net gain from the split?

Question 2: Simon Park is on the board of directors of the Tause Corporation, and Tause has announced its plan to pay dividends of $550,000. Presently there are 275,000 shares outstanding, and the earnings per share is $6. It looks to you like the stock should sell for $45 after the ex-dividend date. If instead of paying a dividend, the management decides to repurchase stock

1. What should be the repurchase price that is equivalent to the proposed dividend? (Hint: Ignore any tax effects.)
2. How many shares should the company repurchase?
3. You want to look out for the small shareholders. If someone owns 100 shares, do you think he would prefer that the company pay the dividend or repurchase stock?