Question 3 Denote today by year 0. Happy Oil is currently expected to pay a total dividend of $1 million in exactly one year's time (year 1), after which the total dividend is expected to grow at an annual rate of 5%, forever. However, the company's CFO has heard that the value of a share depends on the flow of dividends, and therefore announces that the year 1 dividend will be increased to $2 million and that the extra cash needed for the additional dividend will be financed by issuing new equity at year 1. After that, the total dividend each year will be as previously forecasted, that is, $1.05 million in year 2, increasing by 5% in each subsequent year. Currently, the firm has 2 million shares outstanding. The total market value of these shares is $20 million prior to the announcement of the new dividend policy. a) Suppose the newly issued shares are issued at the cum-dividend price in year 1. What is the issue price and how many shares will the firm need to issue? b) Calculate the total dividend paid out to the old shareholders in each year, starting from year 1? What is the total payoff to old shareholders at year 0 after the firm announces the dividend increase? c) Suppose the newly issued shares are issued at the ex-dividend price in year 1. Repeat parts a. and b. d) Compare parts b. and c. Is old shareholders' payoff different? Why