Problem 19-14 Dividends and Firm Value

The net income of Progressive Corporation is $92,000. The company has 25,000 outstanding shares and a 100 percent payout policy. The expected value of the firm one year from now is $1,790,000. The appropriate discount rate for the company is 11 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., 32.16.)
b.	What is the ex-dividend price of the companys stock if the board follows its current policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing the companys price. They proposed that the company sell enough new shares to finance a $4.88 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., 32.16.)
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., 32.16.)