Segwick Petroleum Ltd. has a dividend reinvestment plan in which new stock is issued to participating investors.

Question:

Segwick Petroleum Ltd. has a reinvestment plan in which new stock is issued to participating investors. Segwick’s payout ratio is 40%, and 30% of stockholders participate in the plan. The firm’s ROE is 10%. What percentage increase in flotation-cost-free equity capital does the plan provide?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...