Question
5. XYZ Inc. has no debt and it has 100 shares outstanding witha current share price of $10. It has been consistently paying $1 in
5.
XYZ Inc. has no debt and it has 100 shares outstanding witha current share price of $10.
It has been consistently paying $1 in dividend per share for the last 5 years and it is expected to continue this policy by paying a dividend of $1 shortly.
However, the company feels that it needs the funds for investment in anew project so it is planning to make up the cash shortfall by raising additional funds by issuing more shares.
a) The company's share price on the ex-dividend day should be approximately_________
b) The company will have to issue_________ new shares to make up for the cash shortfall from the dividend.
I'd like to know detailed explanation with formulas and theory that applied to this question. thank you!
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