Dividends and Share Repurchases

Question 1

Change in stock price when div is paid

Answer 1

deltaP = D * [ ( 1 - taxD ) / ( 1 - taxCG ) ]

“scale dividend by the ratio of what you keep of divs over what you keep of capital gains”

Question 2

Effective Tax Rate in Split system

Answer 2

effective = corp + (1-corp) * (individual)

Question 3

Forecasting the next dividend

Answer 3

Next Div = Last Div + [ EPSincrease * targetPayoutRatio * adjustFactor ]

adjustFactor is 1/t where t is the number of years over which you will adjust

Question 4

Capital Budget Funding under Residual Income policy

Answer 4

Given a capital budget and told how it will be financed, Debt%, Equity%, calculate the value that will be funded by equity and then subtract from NI. What is left over is the div available.

Question 5

Dividend Payout Ratio

Answer 5

Dividend / Net Income

Question 6

Dividend Coverage Ratio

Answer 6

Net Income / Dividend

Question 7

FCFE Coverage Ratio

Answer 7

FCFE / [ dividends + share repurchases ]