The net income of Progressive Corporation is $165,000. The company has 35,000 outstanding shares and a 100 percent payout policy. The expected value of the firm one year from now is $2.1 million. The appropriate discount rate for the company is 12 percent 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 the company’s stock 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 the company’s price. They proposed that the company sell enough new shares to finance a $7.50 dividend.

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