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What will be the wealth of the existing investors

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Reference no: EM133009503

Pocket needs to hold on to $50,000 of cash for a future investment. Nevertheless, it decides to pay a cash dividend of $2 per share, and to replace the cash with a new issue of shares. After the dividend is paid and the new stock is issued:

Original Balance Sheet

Cash $150,000 Debt $ 0
Other Assets 950,000 Equity 1,100,000
Value of Firm 1,100,000 1,100,000
Shares outstanding = 100,000
Price per share= $1,100,000 / 100,000 = $11

Problem a. What will be the price per share?

Problem b. What will be the total value of the company?

Problem c. What will be the total value of the stock held by new investors?

Problem d. What will be the wealth of the existing investors including the dividend payment?

Reference no: EM133009503

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