Assume that Wilson Paper funds its capital spending out of its estimated full year earnings. If Wilson uses a residual dividend policy, determine Wilson’s implied dividend payout ratio.
Janet Wu is treasurer of Wilson Paper Company, a manufacturer of paper products
for the office and school markets. Wilson Paper is selling one of its divisions for $70 million
cash. Wu is considering whether to recommend a special dividend of $70 million or a
repurchase of 2 million shares of Wilson common stock in the open market. She is reviewing
some possible effects of the buyback with the company’s financial analyst. Wilson has a longterm record of gradually increasing earnings and dividends. Wilson’s board has also approved
capital spending of $15 million to be entirely funded out of this year’s earnings.
Book value of equity $750 million ($30 a share)
Shares outstanding 25 million
12-month trading range $25–$35
Current share price $35
After-tax cost of borrowing 7%
60 Learning Outcomes, Summary Overview, and Problems
part-i-07 13 January 2012; 10:21:1
Estimated full year earnings $25 million
Last year’s dividends $9 million
Target debt/equity (market value) 35/65
A. 36%.
B. 40%.
C. 60%.
Answer: B. 40%.
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a. ceases to exist b. reverts to the original grantor c. vests in "X" for his life d. vests in the heirs of "A"
Which situation poses ethical concerns for the researcher in terms of preserving the anonymity of the respondents?
A) when the population size is large B) sampling details that are too revealing C) verbatim quotations in reports to the client D) both B and C