Question: Zelnor, Inc., is anall-equity firm with 80 million shares outstanding currently trading for $14.24 per share. Suppose Zelnor decides to grant a total of 8

Zelnor, Inc., is anall-equity firm with 80 million shares outstanding currently trading for $14.24 per share. Suppose Zelnor decides to grant a total of 8 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. Assume perfect capital markets.

a. If the new compensation plan has no effect on the value ofZelnor's assets, what will be the share price of the stock once this plan isimplemented?

b. What is the cost of this plan for Zelnorinvestors? Why is issuing equity costly in thiscase?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Need ASAP Finance Major Zelnor, Inc., is anall-equity firm with 100 million shares outstanding currently trading for $8.50 per share. Suppose Zelnor decides to grant a total of 10 million new shares...

Zelnor, Inc., is anall-equity firm with 120 million shares outstanding currently trading for $9.78 per share. Suppose Zelnor decides to grant a total of 12 million new shares to employees as part of...

Zelnor, Inc., is anall-equity firm with 110 million shares outstanding currently trading for $6.17 per share. Suppose Zelnor decides to grant a total of 11 million new shares to employees as part of...

solve w work please Zeinor, Inc., is an all-equily firm with 70 million shares outstanding currently trading for $1121 per shase. Suppose Zethor decides to grant a tocal of 7militon new shaces to...

Next question Zelnor, Inc., is an all-equity firm with 60 million sh urrently trading for $14.57 per share. Suppose Zelnor decides to grant a total of 6 million new shares to employees as part of a...

all-equity firm with 130 million shares outstanding currently trading for 23. Zelnor, Inc., is an $15.52 per share. Suppose Zelnor decides to grant a total of 13 million new shares to employees part...

Kookia, Inc. is a company that so far has not taken on any debt at all. Kookia has 10 million shares outstanding, each trading at $100 per share. The corporate tax rate is 40% and there are no...

Please answer Questions 1-8 along with showing work! Thank you! 1. You have $10,000 to invest in a stock portfolio. Stock A has an expected return of 14% and stock B has an expected return of 9%. If...

Exercise 2 (3 points) Kookia, Inc. is a company that so far has not taken on any debt at all. Kookia has 10 million shares outstanding, each trading at $100 per share. The corporate tax rate is 40%...

The following T-account is a summary of the Cash account of Cuellar Company. Cash (Summary Form) Balance, Jan. 1 8,300 Receipts from customers 369,080 Payments for goods 234,600 Dividends on stock...

A crystalline metal oxide was characterised using powder X-ray diffraction with a Cu source of wavelength of 1.5405x10-10 m. a) Outline the steps that are required so that phase identification can be...

The financial reward of ESOPs occurs in the form of: Multiple select question. market appreciation of the shares. dividends. negotiated pay increases. individual performance bonuses

The force constant of a massless spring is 2 5 . 0 N / m . A mass of 0 . 4 5 kg is oscillating in simple harmonic motion at the end of the spring

Where are the R&Dmanufacturing synergies (efficiencies)?

Describe Porters generic business strategies and synergy analysis planning frameworks.

Where are the marketing synergies (efficiencies)?