A company currently operates two projects. Each project is expected to generate a cash inflow of...
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A company currently operates two projects. Each project is expected to generate a cash inflow of $6 million every year forever. The company has a cost of capital of 10% and 100 million shares on issue. There are no taxes. All assumptions under Miller and Modigliani Dividend Irrelevancy Proposition hold. a. The company currently pays all its cash flows as a dividend at the end of the year. What will be the shareholders wealth per share at the end of this year including the year-end dividend? [2 marks] b. Suppose the company wants to increase the current year's dividend by $0.60 per share and is liquidating one of the projects at the end of the year to finance the higher dividend. Assume there is no cost of liquidating projects. Demonstrate what impact this would have on shareholder wealth at the end of the year. [2 marks] A company currently operates two projects. Each project is expected to generate a cash inflow of $6 million every year forever. The company has a cost of capital of 10% and 100 million shares on issue. There are no taxes. All assumptions under Miller and Modigliani Dividend Irrelevancy Proposition hold. a. The company currently pays all its cash flows as a dividend at the end of the year. What will be the shareholders wealth per share at the end of this year including the year-end dividend? [2 marks] b. Suppose the company wants to increase the current year's dividend by $0.60 per share and is liquidating one of the projects at the end of the year to finance the higher dividend. Assume there is no cost of liquidating projects. Demonstrate what impact this would have on shareholder wealth at the end of the year. [2 marks]
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Answer rating: 100% (QA)
a Shareholders Wealth per Share at the End of the Year The shareholders wealth per share at the end of the year including the yearend dividend can be ... View the full answer
Related Book For
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
Posted Date:
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