Questions and Problems

Basic

(Questions 1-13)

1. Dividends and Taxes Caputo, Inc., has declared a $5.00 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 34 percent. New IRS regulations require that taxes be withheld at the time the dividend is paid. Caputo sells for $80 per share, and the stock is about to go ex dividend. What do you think the ex-dividend price will be?

2. Stock Dividends The owners' equity accounts for Octagon International are shown here:

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

VI. Cost of Capital and Long-Term Financial Policy

18. Dividends and Dividend Policy

© The McGraw-Hill Companies, 2002

CHAPTER 18 Dividends and Dividend Policy

Common stock ($1 par value)

$ 10,000

Capital surplus

150,000

Retained earnings

552,500

Total owners' equity

$712,500

Market Value Balance Sheet

Cash

$ 15,000

Equity

$150,000

Fixed assets

135,000

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