A corporation operates two factories, one of which generates an annual cash flow of $1,000 million...

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A corporation operates two factories, one of which generates an annual cash flow of $1,000 million in perpetuity, and the other an annual cash flow of $200 million in perpetuity. The corporation has 10,000 million shares on issue and currently pays an annual dividend of 12 cents per share. The corporation believes that its share price is being depressed by the low dividend it pays. It would like to increase its dividend to 32 cents per share but has no desire to raise the cash from capital markets to fund the dividend. Under what conditions will the dividend not have an impact on the wealth of the corporation's shareholders? Illustrate this using the scenario provided, if the appropriate discount rate of the corporation is 10% p.a. A corporation operates two factories, one of which generates an annual cash flow of $1,000 million in perpetuity, and the other an annual cash flow of $200 million in perpetuity. The corporation has 10,000 million shares on issue and currently pays an annual dividend of 12 cents per share. The corporation believes that its share price is being depressed by the low dividend it pays. It would like to increase its dividend to 32 cents per share but has no desire to raise the cash from capital markets to fund the dividend. Under what conditions will the dividend not have an impact on the wealth of the corporation's shareholders? Illustrate this using the scenario provided, if the appropriate discount rate of the corporation is 10% p.a.

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In the scenario you provided where a corporation has two factories generating cash flows and wishes to increase its dividend without raising additional cash from capital markets the impact on the weal... View the full answer