What will be transfer of value from old shareholders

Assignment Help Financial Management

Reference no: EM131910329

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 rate of return of 10% from Consolidated stock.

a. What is the price of Consolidated stock?

b. What is the total market value of its equity? (Enter your answer in millions.) 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.

c. How much new equity capital will the company need to raise to finance the extra dividend payment? (Enter your answer in millions.)

d. What will be the total present value of dividends paid each year on the new shares that the company will need to issue? (Enter your answer in millions.)

e. What will be the transfer of value from the old shareholders to the new shareholders? (Enter your answer in millions.)

Reference no: EM131910329

Questions Cloud

Calculate the bonds macaulay duration : You own a two year, semi annual 10000 par bond with a coupon of 6.9% The market yeild is 5.1%. Calculate the bonds Macaulay duration.

Find the cost of common stock : The convertibles have a 5 year call protection window and a 2% call premium. The company is in the 35% tax bracket. Find the cost of common stock.

What is required external financing over next year : The firm will maintain a dividend payout ratio of 0.30. What is the required external financing over the next year?

What was your dollar return on investment : What was your dollar return on this investment?

What will be transfer of value from old shareholders : What is the price of Consolidated stock? What will be the transfer of value from the old shareholders to the new shareholders?

Firm current assets are financed with long-term liabilities : When a portion of the firm’s current assets are financed with long-term liabilities, the firm has a

Calculate the expected value for firm cs eps : calculate the expected value for Firm C's EPS. Discuss the relative riskiness of the three firms' earnings using their respective coefficients of variation.

Pension department-some of liabilities and risk control : You graduated from USF and got a job at MetLife pension department. Your supervisor needs your help with some of its liabilities and risk control.

Calculate the rate of return on equity for each firm : Calculate the rate of return on equity (ROE) for each firm. Calculate the return on invested capital (ROIC) for each firm.

User Account

All Pages