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Determine the share price of the world star company

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Reference no: EM132589768

World Star Company is an all equity firm. There are 1,000,000 shares outstanding. The firm value is estimated to be $41 million. In the most current year, the cash flow is $3,000,000. The company just announces to pay out 60% of its current year cash flow as cash dividends.

Assume the dividend tax rate is zero.

Required:

(a) Determine the share price of the World Star Company.

(b) Determine the ex-dividend share price of the stock of the World Star Company.

(c) Eliza is one of the shareholders of World Star Company. She prefers 40% payout policy. She currently holds 2,000 shares. Recommend how she could achieve a 40% payout policy on her own. Show by calculation that your proposal could exactly achieve what she wants. (Assume fractional shares can be traded.)

Reference no: EM132589768

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