Gibson Co. has a current period cash flow of $1.6 million and pays no dividends. The present

Question:

Gibson Co. has a current period cash flow of $1.6 million and pays no dividends. The present value of the company’s future cash flows is $18.3 million. The company is entirely financed with equity, and has 345,000 shares outstanding. Assume the dividend tax rate is zero.
a. What is the share price of the 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 stock, achieve a zero payout policy on his own?

Dividend
A 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...