Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Four Seasons Total Landscaping is an all-equity firm that has been in existence for the past three years. Company management expects that the company will

image text in transcribed

Four Seasons Total Landscaping is an all-equity firm that has been in existence for the past three years. Company management expects that the company will last for two more years and then be dissolved. The company will generate a free cash flow of $926,500 one year from today and then its final free cash flow of $1, 188, 100 two years from today. This second cash flow incorporates all of the proceeds from the liquidation process. Assume that the current dividend policy of the firm is to pay out all available free cash flow each year to its shareholders. There are 50, 000 shares outstanding and the shareholders currently require a return of 9% per annum. A) What should be the current price per share of Four Seasons Total Landscaping? The current share price should be $ share (Round to 2 decimal places. Use the unrounded value in any future calculations that need it) The board of directors of Four Seasons Total Landscaping is dissatisfied with the current dividend policy and proposes that a $1,635,000 dividend be paid one year from today (.e. at t=1). To raise the extra cash needed necessary for the increased dividend, the company will sell new shares at t=1 in order to immediately pay out the proceeds to the existing shareholders as the board of directors' desired dividend. B) How much extra funding does Four Seasons Total Landscaping need to raise at t=1 through the new share sale in order to have enough funds to pay the increased dividend to the existing investors? The firm needs to raise $ extra. (Round to 2 decimal places. Use the unrounded value in any future calculations that need it) C) What must be the total value at t=1 of both the existing shares and the newly issued shares together? It may be helpful to remember that, at that time, the only remaining cash flow will be the final liquidating t=2 cash flow of one year later. The value of both the existing and new shares must together be worth $ at t=1 (Round to 2 decimal places. Use the unrounded value in any future calculations that need it)

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

The Oxford Handbook Of Hedge Funds

Authors: Douglas Cumming, Sofia Johan, Geoffrey Wood

1st Edition

0198840950, 978-0198840954

More Books

Students also viewed these Finance questions