Asim and Patricia Ghosh have purchased 4,000 shares in LAXAIR, which sells for $42 per share and pays a yearly dividend of $2.25. The firm has not grown for many years and, consequently has paid the same dividend for the past decade. This year, LAXAIR
cut its dividend to $0.50 per share, but used the retained earnings to begin growing at a 7% rate. Ignoring transaction costs and taxes, how many shares will Asim and Patricia have to sell in order to maintain their income level?
Reduced dividend on 4,000 shares: 4000(2.25 - 0.50 ) = $7000
Stock price at end of first year: 42(1.07 ) = $44.94
Shares that must be sold to make up for lost dividend: 7000/44.94 = 156
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Fill in the blank(s) with the appropriate word(s).
Equipment was acquired for $258,000 and has accumulated depreciation of $194,000
The business exchanges this equipment for new equipment. The new equipment has a market value of $202,000 and the business pays $153,000 cash. Assume the exchange has commercial substance. The exchange results in ________. A) loss $15,000 B) gain $15,000 C) gain $138,000 D) loss $138,000