Suppose that Rocksteady realizes lower than expected of earnings of 3, 000, but does not expect this to impact its future cash flows. It does not want to reduce its dividend, and decides to issue new shares to make up the difference. How many new shares will be issued and at what price? What is the payoff to existing shareholders?

(25) Let Rocksteady Industries be an all-equity firm in a Modigliani-Miller world with 500 shares outstanding and a cost of equity of rE=0.15. Suppose that it has announced a dividend of 12 per share equal to its expected annual earnings