Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consolidated Pasta is currently expected to pay annual dividends of $ 1 0 a share in perpetuity on the 2 . 8 million shares that

Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 2.8 million shares that are outstanding. Shareholders require a 8% rate of return from Consolidated stock. a. What is the price of Consolidated stock? (Do not round intermediate calculations.) b. What is the total market value of its equity? (Enter your answer in millions.) Consolidated now decides to increase next years dividend to $20 a share, without changing its investment or borrowing plans. Thereafter the company will revert to its policy of distributing $10 million a year. c. How much new equity capital will the company need to raise to finance the extra dividend payment? (Enter your answer in millions.) d. What will be the total present value of dividends paid each year on the new shares that the company will need to issue? (Enter your answer in millions.) e. What will be the transfer of value from the old shareholders to the new shareholders? (Enter your answer in millions.) f. Is this figure more than, less than, or the same as the extra dividend that the old shareholders will receive? (More than, less than, the same)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Crimes

Authors: Maximilian Edelbacher, Peter Kratcoski, Michael Theil

1st Edition

0367866528, 978-0367866525

More Books

Students also viewed these Finance questions