3. Chapter 18 Questions and Problems 5 - Beta and Leverage North Pole Fishing Equipment Corporation and South Pole Fishing Equipment Corporation would have identical equity betas of 1.05 if both were all equity financed. The market value information for each company is shown here: _ North Pole South Pole $2,400,000 $4,100,000 $4,100,000 $2,400,000 The expected return on the market portfolio is 10.9% and the riskfree rate is 3.2%. Both companies are subject to a corporate tax rate of 21%. Assume the beta of debt is zero. a. What is the equity beta of each company? b. What is the required rate of return on equity for each company? 4. Chapter 19 Concept Questions 1 - Dividend Policy Irrelevance How is it possible that dividends are so important, but at the same time dividend policy is irrelevant? 5. Chapter 19 Concept Questions 6 - Dividends and Stock Price If increases in dividends tend to be followed by (immediate) increases in share prices, how can it be said that dividend policy is irrelevant? 6. Chapter 19 Questions 81 Problem 10 - Dividends and Stock Price The Mann Company belongs to a risk class for which the appropriate discount rate is 10%. The company currently has 260,000 outstanding shares selling at $107 each. The firm is contemplating the declaration of a $4 dividend at the end of the fiscal year that just began. Assume there are no taxes on dividends. Answer the following questions based on the Miller and Modigliani model, which is discussed in the text. a. What will be the price of the stock on the exdividend date if the dividend is declared? b. What will be the price of the stock at the end of the year if the dividend is not declared? c. If the company makes $3.8 million of new investments at the beginning of the period, earns net income of $1.75 million, and pays the dividend at the end of the year, how many shares of new stock must the firm issue to meet its funding needs? (1. Is it realistic to use the MM model in the real world to value stock? Why or why not