Business Finance

Business Finance Questions

Q1) Suppose that you own 1,200 shares of Nocash Corp and the company is about to pay a 25% stock dividend The stock currently sells at $115 per share

a What will be the number of shares that you hold after the stock dividend is paid? (Do not round intermediate calculations)

Number of Shares_______________

b What will be the total value of your equity position after the stock dividend is paid?(Do not round intermediate calculations)

Total Value_______________

c What will be the number of shares that you hold if the firm splits five-for-four instead of paying the stock dividend?

Number of Shares Hold__________________

Q2) Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 25 million shares that are outstanding Shareholders require a rate of return of 10% from Consolidated stock

a What is the price of Consolidated stock?

Stock Price_____________

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

Market Value of Equity________________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)

New Equity_____________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?(Enter your answer in millions)

Present Value___________Million

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

Transfer of Value__________Million

Solution:

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