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The Mann Company belongs to a risk class for which the appropriate discount rate is 1 0 percent. Mann currently has 1 6 3 ,
The Mann Company belongs to a risk class for which the appropriate discount rate is percent. Mann currently has
outstanding shares selling at $ each. The firm is contemplating the declaration of a $ dividend at the end of the fiscal year that
just began. Assume there are no taxes on dividends. Answer the following questions based on the Miller and Modigliani MM model,
which is discussed in the text.
What will the price of the stock be on the exdividend date if the dividend is declared? Omit $ sign in your response.
Price of the stock
$
b What will the price of the stock be at the end of the year if the dividend is not declared? Omit $ sign in your response.
Price of the stock
$
c If Mann makes $ million of new investments at the beginning of the period, earns net income of $ million, and pays the
dividend at the end of the year, how many shares of new stock must the firm issue to meet its funding needs? Do not round
intermediate calculations.
Number of shares to be issued
shares
d Is it realistic to use the MM model in the real world to value stock?
Yes
No
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