Reference no: EM133116900
A company's net income is $94,000. The company has 25,000 outstanding shares and a 100 percent payout policy. The expected value of the firm one year from now is $1,800,000. The appropriate discount rate is 11 percent, and the dividend tax rate is zero.
a. What is the current value of the company assuming the current dividend has not yet been paid?
Current value of the company $
b. What is the ex-dividend price of the company's stock if the board follows its current policy?
Ex-dividend price $
At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing the company's stock price. They proposed that the company sell enough new shares to finance a dividend of $4.96.
c-1. Calculate the current value of the firm.
Current value of the firm $
c-2. If the proposal is adopted, at what price will the new shares sell? How many shares will be sold?
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