What is price of consolidated stock

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Reference no: EM131862555

Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 1.4 million shares that are outstanding. Shareholders require a rate of return of 8% from Consolidated stock.

A) What is the price of Consolidated Stock?

Stock Price $ 125

B) What is the total market value of its equity?

Market value of equity $175

Consolidated now decides to increase next' years' 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?

New Equity $14 million

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

Present Value $14 million.

E) What will be the transfer of value from the old shareholders to the new shareholders? ( Enter you answer in millions)

Reference no: EM131862555

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