# Dividends and Stocks

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### Overview

Complete a series of four problems in which you calculate the prices of dividends and stocks for hypothetical companies.Note: The assessments in this course build upon each other, so you are strongly encouraged to complete them in sequence.SHOW LESSBy successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment objectives:

• Competency 1: Apply the theories, models, and practices of finance to the financial management of the firm.
• Calculate accurately the ex-dividend price of a stock.
• Calculate accurately the price of a stock after a stock split, stock dividend, and reverse stock split.
• Calculate accurately the future value of a dividend.
##### Competency Map

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### Questions to Consider

To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

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### Resources

#### Suggested Resources

The resources provided here are optional. You may use other resources of your choice to prepare for this assessment; however, you will need to ensure that they are appropriate, credible, and valid. They provide helpful information about the topics in this unit. The MBA-FP6016 – Finance and Value Creation Library Guide can help direct your research. The Supplemental Resources and Research Resources, both linked from the left navigation menu in your courseroom, provide additional resources to help support you.The following resources will provide assistance to complete the assessment.

The following texts are designed to assist learners to master core concepts, solve financial problems, and analyze results.

• ### Assessment Instructions

Demonstrate your understanding of financial concepts by completing the following problems. Where appropriate, show or explain your work. You may use Excel to work on the problems.Problem 1. Dividends and taxes: Midland Incorporated has declared a \$6.50 per share dividend and the stock is about to go ex-dividend. Calculate the ex-dividend price based on the following data:

• Capital gains are not taxed.
• There is a 12 percent tax rate on dividends.
• Taxes must be withheld at the time the dividend is paid, according to new IRS regulations.
• Midland sells for \$76 per share.

Problem 2. Stock splits and stock dividends: Billings Corporation (BC) currently has 365,000 shares of stock outstanding that sell for \$72 per share. Calculate the share price for each of the following scenarios:

1. After BC has a five-for-three stock split.
2. After BC has a 12 percent stock dividend.
3. After BC has a 45 percent stock dividend.
4. After BC has a five-for-seven reverse stock split.

Problem 3. Dividend smoothing: The Deck Company just paid a dividend of \$1.55 per share of stock. Its target payout ratio is 45 percent. In one year, the company expects to have earnings per share of \$7.10. If the adjustment rate is .4, as defined in the Lintner model, what will the dividend be one year from now?Problem 4. Stock dividends: The market value balance sheet for Outland Manufacturing is shown in the table below. Outland has declared a 20 percent stock dividend. The stock goes ex-dividend tomorrow. (Chronology for a stock dividend is similar to that for a cash dividend.) There are 45,000 shares of stock outstanding. Calculate the ex-dividend price.

 Cash: \$165,000 Debt: \$177,000 Fixed Assets: \$658,000 Equity: \$646,000 Total: \$823,000 Total: \$823,000
##### Dividends and Stocks Scoring Guide

VIEW SCORING GUIDEUse the scoring guide to enhance your learning.

• # Dividends and Stocks Scoring Guide

CRITERIA NON-PERFORMANCE BASIC PROFICIENT DISTINGUISHED
Calculate accurately the ex-dividend price of a stock. Does not calculate the ex-dividend price of a stock. Calculates the ex-dividend price of a stock; however, there are errors with the calculations. Calculates accurately the ex-dividend price of a stock. Calculates the ex-dividend price of a stock; uses the appropriate methods to arrive at accurate calculations for all of the problems.
Calculate accurately the price of a stock after a stock split, stock dividend, and reverse stock split. Does not calculate the price of a stock after a stock split, stock dividend, and reverse stock split. Calculates the price of a stock after a stock split, stock dividend, and reverse stock split; however, there are errors with some or all of the calculations. Calculates the price of a stock after a stock split, stock dividend, and reverse stock split. Calculates accurately the price of a stock after a stock split, stock dividend, and reverse stock split; uses the appropriate methods to arrive at accurate calculations for all of the problems.
Calculate accurately the future value of a dividend. Does not calculate the future value of a dividend. Calculates the future value of a dividend; however, there are errors with the calculations. Calculates accurately the future value of a dividend. Calculates the future value of a dividend; uses the appropriate methods to arrive at accurate calculations for all of the problems.