Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

For short-answer questions, plz provide your answers and explanations. For numerical questions, plz show your work . Type it out and make sure it's correct

For short-answer questions, plz provide your answers and explanations. For numerical questions, plz show your work. Type it out and make sure it's correct plz. Plz a and b if u can plz jus do answer the whole Question but regardless I WILL GIVE THUMBS UP!!!! THANKS!

ABC Corp. is an all-equity firm and has 25,000 outstanding shares. The current earnings per share are $1.5. The expected value of the firm one year from now is $1,725,000. The firm currently has a 60% payout policy. The appropriate discount rate for the company is 12%, and the dividend tax rate is zero. We also assume that the market is efficient and frictionless.

  1. What is the companys stock price before paying the current dividend? What is the ex-dividend price of the companys stock if the board follows its current policy?
  2. At the dividend declaration meeting, several board members claimed that the dividend is too meagre and is probably depressing the companys stock price. They proposed to switch to a 150% payout policy. Comment on the claim that the low dividend is depressing the stock price. Support your argument with calculation.
  3. If the proposed policy is adopted, the firm will have to sell new shares to finance its dividend. At what price will the new shares sell? How many will be sold?
  4. In the real world with taxes and market imperfections, what are the pros and cons of the proposed dividend policy in comparison with the current policy?

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

Step: 3

blur-text-image

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

Mastering Forex Markets Volume 1 A Trader S Guide To Success

Authors: Melee God

1st Edition

979-8867877897

More Books

Students also viewed these Finance questions

Question

Show the properties and structure of allotropes of carbon.

Answered: 1 week ago