1) It has been shown that in the absence of taxes and other market imperfections firm value will be unaffected by dividend policy. Explain the logic behind this conclusion. Next, describe three real-world factors that may cause one dividend policy to be preferable to another.
2) A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,000 and other assets of $6,000. Equity is worth $18,000.
The firm has 700 shares of stock outstanding and net income of $1,200. What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?
3) On June 9th, you purchased 3,000 shares of SP stock. On July 5th, you sold 400 shares of this stock for $21 a share. You sold an additional 400 shares on July 18th at a price of $22.50 a share.
The company declared a $.30 per share dividend on June 20th to holders of record as of July 10th. This dividend is payable on July 31st. How much dividend income will you receive on July 31st as a result of your ownership of SP stock?