After completing their degree at UTRGV in 1992, Brian Mark, Finance Major and Steven James, IT major pursued their dream of launching computer games design company. Early 1993, the friends started preparing Stevens house garage to become the first location of their company, Digital Studios partnership. Throughout the years, Digital Studios passed through several successes and failures. Within the period 1993-1996, Digital Studios exploded significantly with regard to sales and reputation. They specialized in producing and designing kids games based on animation and cartoon characters. Early 1997, Digital Studios encountered a hard to reject opportunity. Disney Inc. was searching for a small company to partnership with in order to produce a computer game for their new star Hercules. Digital Studios did not have enough resources and capital to undertake this opportunity. However, with the unbelievably growing IT industry towards late 1990s, the friends immediately thought of going public. It is May 1st 1997, the most recent value estimate for Digital Studios is $20 Million. The company is going to be incorporated and part of its equity is going to be sold to the public. The friends decided to keep 60% of the firms voting rights. However, to raise the fund required to undertake Disneys opportunity, the company had to sell 80% of its equity to the public. The underwriter proposed to register two types of shares to accommodate their request, Class A to be issues to the public and Class B to be issued to the founders. The company is going to issue 20 million shares in total.

Qs# 13) Now it is 2008, the whole market is struggling to overcome the financial crisis. Digital studios decided to adopt a constant dividends policy. The management announced that it is going to pay $1.5 annual dividends indefinitely. What is the stock price if the required rate of return is 12%? $ 55.56 $ 83.33 $ 41.67 $ 166.67