ILMA UNIVERSITY
Name : Muhammad Sannan
I.D : BB-4515
Course : Corporate Finance
Course Code : FIN601
Teacher : Sir Abdul Hameed
Section : B
Assignment
Dividend Policy Question and Answer
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DIVIDEND POLICY
1) ABC Corporation has 1.3 million common shares outstanding and total earnings of $2.4 million. The
firm paid dividends totaling $550,000. The firm has no preferred stock.
a) What were the dividends per share paid by ABC?
b) What was ABC’s dividend payout ratio?
Ans:
Solve A) formula
Total Dividend /total # of share outstanding
550000/1300000= 0.42 Ans
Solve B) Formula
Total Dividend / Total Earning
550000/2400000x100= 22.91% Ans
2) Price stock sells for $275 per share and you own 300 shares.
a) What is the current market value of your investment?
b) What is the new price per share, new amount of shares you will own, and the new market value of
your investment if the firm declares a 3 for 1 stock split? If the firm declares a 15% stock
dividend?
Solve A) Current Market Value = no of share x current market price
300 x 275 = 82500 Ans
Solve B) 3 for 1
No of new share = 3 x 300 = 900
New price of share = 275/3 = 91.66
New investment value = no of share own x new per share value
900 x 91.66 = 82500
300 Share = 300 x 15% = 45 Share Additional
900+45 = 945
945 x 91.66 = 86618 Ans
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3) Semi-Nowl Corporation has 1.1 million shares of 8% cumulative preferred stock outstanding with a
stated value of $100 per share. If dividends are not paid for four years, what will be the amount of
arrearage?
Solve : Cumulative Dividend = paid previous + current year to preferred holder
Non Cumulative = pay only current year Dividend
Share = 1100000
Par value or initial or face value =100 per share
8% cumulative dividend ( 8% x 100 = 8 Per share )
Total amount of preferred dividend after 4 year = 4x1100000x8 = 35200000 Ans
4) Suppose you own 500 shares of FSU Inc. 12% convertible preferred stock. If each preferred share is
convertible into 25 common shares, what is the conversion value of your 5,000 preferred shares if the
common stock is trading at $30 per share?
Solve : 500 preferred into 25 per share into common share
500 x 25 = 12500 x 30 = 375000 Ans
5) KLM Company issued $3 million of 9.75% $80 par preferred shares in 2001. Calculate the total
amount of dividends paid on this issue per year and the annual amount of the dividends per share.
Solve :
Total Capital = no of share x par value
3000000 = don’t know x 80
3000000/80= no of share
37500 no of share
Per share dividend = 9.75% x 80 = 7.8
37500 x 7.8 = 292500 Ans
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