Question: Please help with the following problem with clear explinations! thank you! Problem 17: Heidleburg Corporation has annual income of $2 million and has 1 million
Please help with the following problem with clear explinations! thank you!
Problem 17: Heidleburg Corporation has annual income of $2 million and has 1 million shares of stock outstanding. The company has no expansion opportunities, and depreciation equals the replacement cost necessary to maintain the current level of output, so income is available to distribute as dividends and is expected to continue indefinitely. Dividends are paid annually and the last dividend was just paid. Similar investments pay a rate of return of 16 percent. What is the value of Heidleburg Corporation and a share of Heidleburg Corporation stock?
Problem 18: a new opportunity arises for Heidleburg Corporation (problem 17). The investment will require 1 million of equity a year from now, and will earn income (available for dividends) of $200,000 a year indefinitely. What is the value today of that future investment opportunity?
Problem 19: Show how todays stock price for Heidelberg Corporation (problem 18) is affected if investors become aware of the new investment opportunity and know the equity requirement will be funded with retained earnings.
Problem 20: Show how todays stock price for Heidlehurg Corporation (problem 18) is affected if investors in a fully informed market become aware of the new investment opportunity and know the equity requirement will be funded with the sale of new shares.
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