Mahomes Co. has a current period cash flow of $1.2 million and pays no dividends. The present
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Mahomes Co. has a current period cash flow of $1.2 million and pays no dividends. The present value of the company’s future cash flows is $15.9 million. The company is entirely financed with equity and has 475,000 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?
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a First you need to calculate the equity value of the com...View the full answer
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Related Book For 
Corporate Finance
ISBN: 9781260772388
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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