Problem $19-14$ Dividends and Firm Value

The net income of Progressive Corporation is $$82,000.$ The company has $25,000$ outstanding shares and a $100$ percent payout policy. The expected value of the firm one year from now is $$1,730,000.$ The appropriate discount rate for the company is $14$ percent and the dividend tax rate is zero.

a$.$

What is the current value of the firm assuming the current dividend has not yet been paid? $($Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

b$.$ What is the ex$-$dividend price of the company$$s stock if the board follows its current policy? $($Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing the company$$s price. They proposed that the company sell enough new shares to finance a $$4\mathrm{.}48$ dividend.

c$-1.$

Calculate the current value of the firm. $($Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$

c$-2.$ If the proposal is adopted, at what price will the new shares sell? How many will be sold? $($Do not round intermediate calculations and round your answers to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$