Question
The net income of Novis Corporation is $90,000. The company has 20,000 outstanding shares and a 100 percent payout policy. The expected value of the
The net income of Novis Corporation is $90,000. The company has 20,000 outstanding shares and a 100 percent payout policy. The expected value of the firm one year from now is $1,780,000. The appropriate discount rate for Novis 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 final answer to 2 decimal places. (e.g., 32.16)) |
Current value of the firm | $ |
b. | What is the ex-dividend price of Noviss stock if the board follows its current policy? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
Ex-dividend price | $ |
c. | At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing Noviss price. They proposed that Novis sell enough new shares to finance a $5.70 dividend. |
c-1. | Calculate the current value of the firm. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
Current value of the firm | $ |
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 final answers to 2 decimal places. (e.g., 32.16)) |
Current share price | $ |
Shares sold |
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