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At time 0, a firm is valued at $1,000 and has no debt. Its equity consists of 100 common shares worth $10 each. The expected
At time 0, a firm is valued at $1,000 and has no debt. Its equity consists of 100 common shares worth $10 each. The expected rate of return for the firm is 5% in time 1 and 6% in time 2.
1.At time 2, the firm decides again to issue dividends of $2 per share to existing shareholders, by issuing new shares. How many new shares does it have to issue? What is the issuing price of the new shares?
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