Question
You own 100 shares of stock of unlevered Shaan Company which has 1,000 shares outstanding. Shaan plans to pay $2,200 dividend at the end of
You own 100 shares of stock of unlevered Shaan Company which has 1,000 shares outstanding. Shaan plans to pay $2,200 dividend at the end of the current year (i.e., one year from today) and a liquidating dividend of $4,840 at the end of 2 years from today. The required return on Shaans stock is 10 percent. Ignoring taxes and transaction costs:
Suppose shareholders want Shaan to increase its $2,200 dividend payout at the end of the current year to $3,102 and Shaan increases the dividend by issuing at the end of the current year new stock worth the amount needed to increase the dividend. How many shares will be issued to the new stockholders at the end of the current year? Show calculations
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