Gibson Co. has a current period cash flow of $1.3 million and pays no dividends. The present
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Gibson Co. has a current period cash flow of $1.3 million and pays no dividends. The present value of the company's future cash flows is $18 million. The company is entirely financed with equity and has 550,000 shares outstanding. Assume the dividend tax rate is zero.
a. What is the share price of the company's stock?
b. Suppose the board of directors of the company announces its plan to pay out 50 percent of its current cash flow as cash dividends to its shareholders. How can Jeff Miller, who owns 1,000 shares of the company's stock, achieve a zero payout policy on his own?
DividendA dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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Related Book For 
Corporate Finance
ISBN: 978-0077861759
11th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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