Question
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.
- 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?
- 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.
- 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?
- 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?
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