(a) Himalaya Company expects next year's net income to be Rs. 12 million. The firm's current debt ratio is 60 percent. Himalaya has Rs. 15 million of…
BBS Fundamentals of Financial Management · 2081 · Solved Question with Answer
(a) Himalaya Company expects next year's net income to be Rs. 12 million. The firm's current debt ratio is 60 percent. Himalaya has Rs. 15 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual dividend model, how large should Himalaya Company's dividend payout ratio be next year?(b) Sahara Company has the following shareholder's equity account:
| Common Stock (100,000) share @ Rs.100 | 10,000,000 |
| Additional Paid in Capital | 5,000,000 |
| Retained earning | 15,000,000 |
| Shareholder's equity | 30,000,000 |
The current market price of the stock is Rs. 300 per share. What will happen to this account and to number of shares outstanding if company pays a 20 percent stock dividend? What would be new selling price of common stock after the 20 percent stock dividend?