Currently expected to pay annual dividends

Assignment Help Financial Management

Reference no: EM131851638

Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 2.7 million shares that are outstanding. Shareholders require a rate of return of 10% from Consolidated stock.

a. What is the price of Consolidated stock?

b. What is the total market value of its equity? (Enter your answer in millions.)

Consolidated now decides to increase next year’s dividend to $20 a share, without changing its investment or borrowing plans. Thereafter the company will revert to its policy of distributing $10 million a year.

c. How much new equity capital will the company need to raise to finance the extra dividend payment? (Enter your answer in millions.)

d. What will be the total present value of dividends paid each year on the new shares that the company will need to issue? (Enter your answer in millions.)

e. What will be the transfer of value from the old shareholders to the new shareholders? (Enter your answer in millions.)

f. Is this figure more than, less than, or the same as the extra dividend that the old shareholders will receive?

More than

Less than

The same

Reference no: EM131851638

Questions Cloud

What would be the effect of that market reaction : What would happen? How would the market react, and what would be the effect of that market reaction?

What is the firm operating cash flow : Tubby Toys estimates that its new line of rubber ducks will generate sales of $6.10 million, what is the firm’s operating cash flow?

How much would this amount differ from simple interest : how much interest would be earned in the third year? How much would this amount differ from simple interest?

Accepting the new lease change sally theoretical net worth : By what absolute dollar amount did accepting the new lease change Sally's theoretical net worth?

Currently expected to pay annual dividends : Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 2.7 million shares that are outstanding.

Evaluate the present value of introduction of new chip : What is the proper cash flow to use to evaluate the present value of the introduction of the new chip?

Bond prices and interest rate changes : Bond Prices and Interest Rate Changes. What is the change in price the bond will experience in dollars?

What is the terminal cash flow at the end of year three : Your company is considering expanding operations and buying new machine to handle increased volume. What is the terminal cash flow at the end of year 3.

Example of flexibility option : Which one of the following is an example of a "flexibility" option? A company has an option to invest in a project today or to wait a year.

User Account

All Pages