Posted: September 14th, 2015

Stock split

HW9 Problems

Answer the following problems in detail. Please show your work.

Problems:
(14-2) Petersen Company has a capital budget of $1.2 million. The company wants to maintain a target capital structure which is 60% debt and 40% equity. The company forecasts that its net income this year will be $600,000. If the company follows a residual distribution model and pays all distributions as dividends, what will be its payout ratio?

(14-5) JPix management is considering a stock split. JPix currently sells for $120 per share and a 3-for-2 stock split is contemplated. What will be the company’s stock price following the stock split, assuming that the split has no effect on the total market value of JPix’s equity?
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