An all-equity firm consists of a single project that will produce a perpetual cash flow of either $100M (good state) or $30M (bad state) next year. The probability of the good state is 30%. The beta of the asset cash flows is 1.25 and the risk-free rate is 3 percent and the market risk premium is 8 percent. There are 6M shares outstanding.

The manager claims that the cash flows are high. To prove it, they will issue a $25M dividend. Most of the shareholders are institutional investors. Would the public believe that the managers signal is credible?

A.Not enough information

B.Yes

C.No