Cpa Firm Essay
Natsam Corporation has $250 million of excess cash. The firm has no debt and 500 million shares outstanding with a current market price of $15 per share. Natsam’s board has decided to pay out this cash as a one-time dividend. a. What is the ex-dividend price of a share in a perfect capital market?
$250/500 = 0.50
Answer: the ex-dividend price of a share in a perfect capital market is 0.50 b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market, what is the price of the shares once the repurchase is complete?
Answer: the price of the share once the repurchase is complete is $15.00 c. In a perfect …show more content…
Absent transactions costs, what is the highest dividend tax rate of an investor who could gain from trading to capture the dividend?
Answer: If the stock price drops by 80% of the dividend amount, then shareholders are indifferent if t*_d = 20%. From Eq. 17.3, (td – tg)/(1 – tg) = t*, so td = tg + t* (1 – tg) = 36%. Investors who pay a lower tax rate than 36% could gain from a dividend capture strategy.
Problem 23-5 on Preferred Stock Based on Chapter 23 Raising Equity Capital
Three years ago, you founded your own company. You invested $100,000 of your money and received 5 million shares of Series A preferred stock. Since then, your company has been through three additional rounds of financing.
Round | Price ($) | Number of Shares | INVESTMENT | Series B | 0.50 | 1,000,000 | 250,000,000 | Series C | 2.00 | 500,000 | 500,000 | Series D | 4.00 | 500,000 | 2,000,000 | TOTAL | | 7,000,000 | 253,500,000 | a. What is the pre–money valuation for the Series D funding round?
Pre-money valuation = Post Money Valuation – New Investment
Pre-Money Valuation = 28000000-2000000
Pre-Money Valuation = $26,000,000.00
b. What is the post–money valuation