Expected post-split stock price

Question

Question 1: Marcus Corporation has a capital budget of $5 million and wants to maintain a capital structure of 40% debt and 60% equity. The company expects net income of 4 million.  What is the expected dividend payout ratio if the company follows a residual dividend policy?

• 50%
• 40%
• 20%
• 25%
• none of the above

Question 2: MLC, Inc. stock sold for $75 per share prior to a 4 for 1 stock split.  What is the expected post-split stock price, everything else held constant?

• $50.00
• $37.50
• $18.75
• $71.00
• none of the above

Question 3: A company’s dividend policy decision should not be influenced by which of the following?

• Constraints imposed by the firm's bond indenture.
• The fact that much of the firm's equipment has been leased rather than purchased
• The firm's ability to accelerate investment projects.
• The firm's ability to delay investment projects
• none of the above

Question 4: A company's stock sells for $2.00 per share.  The company wants to use a reverse split to get the price up to $22 per share.  How many of the old shares must be given up for one new share to get to the $22 price?  Assume this transaction has no effect on market value.

• 22.0
• 20.5
• 10.0
• 12.0
• none of the above

Question 5: Which of the following would be most likely to result in an increase in a firm's dividend payout ratio?

• Its access to the capital markets decreases.
• It has more high-return investment opportunities
• Its accounts receivable increase due to a change in its credit policy.
• It has fewer high-return investment opportunities.
• none of the above

Question 6: A company wants to raise $10 million in equity at an expected offering price of $20 per share. Its investment banker will receive $1.50 for each share sold and incur expenses of $1 million. How many shares must be sold for the company to receive $10 million. Round to the nearest whole number.

• 450,000
• 594,595
• 500,000
• 540,541
• none of the above

Question 7: A company is planning an IPO of 10 million shares.  Each share is expected to sell at $10  per share.    The underwriters will charge an 8% spread and incur expenses of $500,000.   How much will the company receive if all shares sell at the expected price?

• $91,450,000
• $92,000,000
• $100,000,000
• $99,500,000
• none of the above

Question 8: A company sold 10 million shares in an IPO at a price of $10 per share.    The underwriters charged an 8% fee and incurred expenses of $500,000.  Price per share at the end of the first day was $12.50.  How much money was left on the table?

• $15.8 million
• $33 million
• $17 million
• $25 million
• none of the above

Question 9: Which of the following is a good reason for a company to go public?

• The company has excess capital
• The company has a low debt ratio
• The company's founders want to diversify
• Costs of reporting will be low
• none of the above

Question 10: A large company with publicly traded stock plans to issue additional shares.  This is called:

• a shelf registration
• A private placement
• a seasoned equity offering
• an employee stock option plan
• none of the above