Suppose that a firm always announces a yearly dividend at the end of the first quarter of the year, but then pays the dividend out as four equal quarterly payments. If the next such “annual” dividend has been announced as $6, it is exactly one quarter until the first quarterly dividend from that $6, the effective annual required rate of return on the company’s stock is 17 percent, and all future “annual” dividends are expected to grow at 6 percent per year indefinitely, how much will this stock be worth?
Answer to relevant QuestionsEverything else held constant, if a firm announces that it will double the length of time between its ex-dividend date and its payment date, what should be the effect on the stock price? Show mathematically that, with a tax rate on both dividends and capital gains of 15 percent, it doesn’t matter whether earnings are paid out as dividends or kept in the firm to cause g to grow for a constant-dividend ...What are the advantages and disadvantages to a new or small firm of getting capital funding from a venture capital firm? What is the difference between a prospectus and a red herring prospectus?Don’s Captain Morgan, Inc. needs to raise $12.5 million to finance plant expansion. In discussions with its investment bank, Don’s learns that the bankers recommend an offer price (or gross proceeds) of $25.50 per share ...
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