Zelnor, Inc., is an all-equity firm with 130 million shares outstanding currently trading for $15.52 per share.
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Zelnor, Inc., is an all-equity firm with 130 million shares outstanding currently trading for $15.52 per share. Suppose Zelnor decides to grant a total of 13 million new shares to employees as part of a new compensation plan. The firm argues that this new compensation plan will motivate employees and is better than giving salary bonuses because it will not cost the firm anything.
a. If the new compensation plan has no effect on the value of Zelnor’s assets, what will be the share price of the stock once this plan is implemented?
b. What is the cost of this plan for Zelnor investors? Why is issuing equity costly in this case?
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Related Book For 
Corporate Finance The Core
ISBN: 9781292158334
4th Global Edition
Authors: Jonathan Berk, Peter DeMarzo
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