Solutions to the mini c case 3 AFM (grade: 10/10)

Advanced Financial Management – Mini Case 3 Isabella Arnold, 2665767


Mini Case 3: Payout Policy
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content in this document has not previously been submitted for any other assignment in this
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Question 1
a. Share price JNJ = 166.18 and there are 2.63 billion shares outstanding.
b. Total amount of the balance sheet: 14,487,000,000 USD


Question 2
a. 14,487,000,000/2 = 7,243,500,000 USD (half of cash)
7,243,500,000/166.18 = 43,588,277.77 shares. Therefore, 43.588 million shares are
repurchased
b. Dividend: 7,243,500,000/2,630,000,000 = 2.75 USD dividend per share


Question 3
On the 11th of February 2015, the price of the stock adjusted for stock splits was 100.38 USD.


Question 4
1. Capital gain per share = selling price – initial price = 166.18 - 100.38 = 65.8 USD per
share
2. Total capital gain: 65.8 * 10,000,000 * 1.66% = 10.92 million USD capital gain
3. Tax on capital gain: 10.92 million * 20% = 2.185 million USD taxes on the capital
gain
Since closing price adjusted for stock splits and dividends includes the capital gain in the
price after dividends are paid out, it already represents the investor's overall return. This
would be the incorrect price to use for calculating capital gains and taxes on the repurchasing
case because the price is not adjusted for the calculation for repurchasing shares.
The closing price after dividend and stock splits can be used to determine the share price after
dividends and capital gains when dividend is paid out.


Question 5