What is the current value of firm

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Problem: The net income of MSC Corporation is US$65,000. The company has 25,000 outstanding shares and a 100 percent pay-out policy. The expected value of the firm one year from now is US$1,835,000. The appropriate discount rate for MSC is 12 percent per annum, and the dividend tax rate and capital gain tax rate is zero.

Question 1: What is the current value of firm assuming the current dividend has not yet been paid?

Question 2: What is the ex-dividend price of MSC's stock if the board follows its current policy?

Question 3: At a meeting to discuss dividend policy, several board members claimed that the dividend is too meagre and is probably depressing MSC's price. They proposed that MSC sell enough new shares to finance US$4.60 dividend. Comment on the claim that the low dividend is depressing the stock price. Support your argument with calculations.

Reference no: EM132428774

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