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29 April, 10:19

The Montauk Company has a dividend reinvestment plan in which shareholders owning 27% of its common stock participate. Last year the firm's EPS was $4.20, and its payout ratio was 60%. There are 2 million shares of common stock outstanding. How much new capital did Montauk raise through the reinvestment program?

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  1. 29 April, 10:22
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    Total capital gain will be $1360800

    Explanation:

    We have given EPS = $4.20

    Total number of shares = 2000000

    So total Net Income = EPS x No. of shares = $4.20 x 2000000 = $8,400,000

    Dividend = 60% x 8,400,000 = $5040000

    25% shareholder participated in dividend reinvestment

    So Capital raised = 27% x $5040000 = $1360800

    So total capital gain will be $1360800
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