The B. Phillips Corporation is planning to pay dividends of $550000. There are 275000 shares outstanding with earnings per share of $6. The
stock should sell for $45 after the ex-dividend date. If instead of paying a dividend management decides to repurchase stock:
a. What should be the repurchase price?
b. How many shares should be repurchased?
c. What if the repurchase price is set below or above your suggested price in part a?
d. If you own 100 shares would you prefer that the company pay the dividend or repurchase the stock? 5. Dee%u2019s Christmas Trees Inc. is evaluating options for financing its seasonal working-capital needs. A short-term loan from Liberty Bank would carry a
14% annual interest rate with interest paid in advance (discounted). If this option is chosen Dee%u2019s would also have to maintain a minimum demand deposit
equal to 10 percent of the loan balance throughout the term of the loan. If Dee%u2019s needs to borrow $125000 for the upcoming three months before
Christmas what is the effective cost of the loan? 2 6. Duro Auto Parts would like to exploit a production opportunity overseas and is seeking additional capital to finance this expansion. The company plans a
commercial paper issue of $15 million on February 3 2000. The firm has never issued commercial paper before but has been assured by the investment banker
placing the issue that it will have no difficulty raising the funds and that this method of financing is the least expensive option even after the $150000
placement fee. The issue will carry a 270-day maturity and will require interest based on an annual rate of 12%. What is the effective cost of the commercial
paper issue to Duro?