A company is to pay a dividend of $1m in exactly 1 year time after which dividend is expected to grow at a rate of 5% forever, The CEO has heard that the share value depends upon the flow of dividend and therefore is about to announce that year 1's dividend will be increased to $2m and so the extra cash required to pay dividend will be financed through contemporaneous equity issue. In subsequent years dividend will remain the same as previously forecasted. The firm has 2m shares outstanding with a market value of $20m prior to the announcement of new dividend policy.

Required:

a) Assume that new shares issued are issued at cumulative div price at the end pf the year. what is the issue price and how many shares will be issued by firm.

b) What is the payoff to the existing shareholders as of the current date immediately after the firm announces the additional dividend.

c) Assume now that new shares are issued at ex div price at the end of the year what is the issue price and how many shares will be issued by firm.What is the payoff to the existing shareholders as of the current date immediately after the firm announces the additional dividend.

d) Is the payoff for the existing share holders as of the current date different in parts b) and c). Explain why or why not ?