5. The Caraway Seed Company sells specialty gardening seeds and products primarily tomail-order and Internet customers. The firm has $200,000 available for distribution as a cash dividend immediately and plans to shut down its business at the end of oneyear, at which time it will be prepared to pay a liquidating dividend of $1.20 million to thefirm's stockholders. Thefirm's shareholders require a 10.0 percent rate of return for investing in theall-equity-financed firm.

a. What do you estimate the value ofCaraway's equity to be today if it pays out a $200,000 cash dividend today and plans to pay a $1.20 million liquidating dividend at the end of theyear?

b. IfCaraway's board of directors decides to pay a $600,000 dividend today to its existing shareholders using an equity offering selling new shares of common stock to raise the additional $400,000 it needs to make the cashdividend, what will be the value of the existing shares ofstock? The newshares?

6. After more than 40 years ofoperation, the Tyler Brick Mfg. Company has decided it is time to shut down the business. The firm has $151,000 available for distribution as a cash dividend immediately and plans to shut down its business at the end of oneyear, at which time it will be prepared to pay a liquidating dividend to thefirm's stockholders of $13.8 million. Thefirm's shareholders require a 14.7 percent rate of return for investing in theall-equity financed firm.

a. What do you estimate the value ofTyler's equity to be today if it pays out a $151,000 cash dividend today and plans to pay out a $13.8 million liquidating dividend at the end of theyear?

b. IfTyler's board of directors decides to pay a $1,900,000 dividend today to its existing shareholders and uses an equity offering selling new shares of common stock to raise the additional funds that it needs to make the cashdividend, what will be the value of the existing shares ofstock? The newshares?