1. The net income of Novis is 32,000 kroner (DKr). The company has 10,000 outstanding shares and 100 per cent payout policy. The expected value of the firm one year from now is DKr 1,545,600. The appropriate discount rate for Novis is 12 per cent, 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?

b)What is the ex-dividend price of Novis's equity if the board follows its current policy?

c) At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing Novis's price. They proposed that Novis should issue new shares to finance an increase of the current dividend to DKr 4.25.

• Comment on the claim that the low dividend is depressing the share price. Support your arguments with calculations.
• If the proposal is adopted, at what price will the new shares sell? How many will be sold?

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1. A company is proposing a rights offering at 20 of 1 new share for every 19 held. Currently the company has 19 million shares outstanding and the market share price is 30.

a)How many shares will be issued and what will be the total amount of money raised?

b)What will be the prospective stock price after the issue?

c)What is the value of the right to buy a new share?

d)How far would the total value of the company fall before shareholders would be unwilling to take up their rights? Justify your answer.

I know how to solve a-d, its the next 2 that im not sure

e)Ms. Y owns 351,404 shares before the issue. How many shares can Ms. Y buy without paying extra cash (neutral transaction)? Calculate the number of remaining rights after the neutral transaction.

f)Mr. X owns 512,100 shares as a result of a neutral transaction. Calculate the number of shares owned by Mr. X before the rights issue?