Kirk Kerkorian buys a 10% share (100M shares) in FatCats Inc. at $11.50 per share. He is elected to the board of directors. He persuades the company to pay a $2/share dividend ($2B). Jensens free cash flow hypothesis argues that the reduced financial slack in the company causes Mr. Kozlowski to reduce his wasteful ways, because of an increased risk of bankruptcy that would cause him to lose his job. Assume that the 25% waste is eliminated and the annual free cash flow returns to $1B.

Calculate the new stock price. What is the percentage return for Mr. Kerkorian?

the answer is 1)new price = $12, percentage return = 21.74% (please show detailed calculations, thanks