How much new equity capital will the company need

Reference no: EM132198462

Question - Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 2.5 million shares that are outstanding. Shareholders require a 10% rate of return from consolidated stock. 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.

a. How much new equity capital will the company need to raise to finance the extra dividend payment?

b. What will be the total present value of dividends paid each year on the new shares that the company will need to issue?

c. What will be the transfer of value from the old shareholders to the new shareholders?

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

Reference no: EM132198462

Questions Cloud

How scientific method could be use to test research question : In everyday life, we are regularly exposed to various claims about human psychology and human behavior. While some of these claims may be scientifically valid.

Utilizing strategic alliances in healthcare organizations : What is purpose of utilizing strategic alliances in healthcare organizations? How is shared leadership incorporated?

Discuss most common reasons for unethical decision making : Identify and discuss the most common reasons for unethical decision making among psychology professionals. Once you have established some reasons.

List the traits of an authentic leader : Share a personal experience that informed your thoughts about health care leadership - Explain how this exercise is beneficial to becoming an authentic health

How much new equity capital will the company need : How much new equity capital will the company need to raise to finance the extra dividend payment? What will be the total present value of dividends paid

Analyzing patterns of symptoms and environmental factors : Social work clinicians keep a wide focus on several potential syndromes, analyzing patterns of symptoms, risks, and environmental factors.

Assess the organizational dynamics of organization : For this assignment, you will assess the organizational dynamics of an organization you are familiar with.

Identify three strategies that you can implement today : Disputing negative thinking and deliberately practicing positive self-talk. Choosing to forgive others and let go of grudges and hard feelings.

Environment differ from the general business world : What barriers in strategic planning for a health care environment differ from the general business world?

User Account

All Pages