Homework #8 Dividend Policy 1. (40 points) The firm below intends to pay $3 dividends to its shareholders. To maintain the same asset level, the firm will issue new shares. (A) What is the dollar amount of new shares that need to be raised (red area)? (B) How many new shares need to be issued? (C) What is the new share price? (D) What is the value of share holdings by old stockholders after the dividend (green area)? Debt = $3 Debt = $3 Cash = $5 Cash = $5 After Dividends = $3 Equity = $? Equity = $12 (3 shares) Non-Cash Assets = $10 $1.0 per share Non-Cash Assets = $10 New Equity = $? Frank Sung for Rutgers Business School Spring 2021 Homework #8 Dividend Policy 2. (20 points) Following the previous question. At the ex-dividend date, the share price of the company should fall. Please fill up the share prices before and after the dividend. Assume there are no taxes or transaction costs. $? Share Price = $? $? Ex-dividend date Time