1. A firm has 1,000,000 shares outstanding with a price per share of $25.10 (previous to any dividend payment). It decides to pay out cash
1. A firm has 1,000,000 shares outstanding with a price per share of $25.10 (previous to any dividend payment).
It decides to pay out cash dividend of $2,100,000.
What will the share price be after the dividend has been paid?
Assume that Modigliani-Miller and its assumptions are true.
2. A firm has 10,000,000 shares outstanding with a price per share of $22.80 (previous to "Rights Issue").
It does a "Rights Issue" where it offers 2,000,000 shares to existing shareholders at a price of $16.30.
A rights issue is an invitation to existing shareholders to purchase additional new shares in the company.
https://www.investopedia.com/investing/understanding-rights-issues/
The "Rights Issue" is fully subscribed, that is existing shareholders purchase all the shares offered.
What will the share price be after the dividend has been paid?
Assume that Modigliani-Miller and its assumptions are true.
Step by Step Solution
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Step: 1
Sure lets calculate the share prices after a dividend payment and a rights issue Well analyze both parts of the question sequentially Part 1 Share pri...See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
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