solution

As a stockholder in Bio Lab, you receive its annual report. In the financial statements, Bio Lab has reported that the after-tax (net) income is $360 million. With 200 million shares of common stock outstanding, Bio Lab announced to distribute $150 million of dividends to its shareholders. The stock is now sold for $27 per share. 1

a. Find the earnings per share (EPS) of Bio Lab. 2 marks
b. Find the historical price-caminys (PE) ralio of Bio Lab. 2 marks
c. Suppose that Bio Lab does not have any outstanding debt. The current stock price reflects the fair value of the Company.
1 What is the market value of Bio Lab before the ex-dividend date?
ii. What is the market value of Bio Lab after the ex-dividend date?
iii. What is the price per share of Bio Lab after the ex-dividend date?
iv. Find the value of investor’s wealth who holds 6,000 shares of Bio Lab before the ex-dividend date,
v Find the dividend income of an inve stor who holds 6,000 shares of Bio Lab until the ex-dividend date,
vi. Find the value of shareholding on the ex-dividend date of an investor who holds 6.000 shares of Bio Lab. 10 marks d. d Will it be different for the investor to sell his shares before the ex-dividend date or to hold his shares until the ex-dividend date which allows him to receive dividend? Suppose that the dividend is paid on the ex-dividend date. Explain by referring to your answers in part ( C ). 3 marks

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. Sources: Ross, FCE, MiH; Kerk, Corporate Finance Brcaley, PME, Pearson Py. 3 of 4
 
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