Problem $19\mathrm{.}1$

$7$ points

The Mann Company belongs to a risk class for which the appropriate discount rate is $15$ percent.

Mann currently has $140,000$ outstanding shares selling at $$125$ each. The firm is contemplating

the declaration of a $$5$ 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 ex$-$dividend date if the dividend is declared? $1$ point

b$.$ What will be the price of the stock at the end of the year if the dividend is not declared? $1$

point

c$.$ If Mann makes $$3\mathrm{.}25$ million of new investments today, earns net income of $$1\mathrm{.}1$ million, and

pays the dividend at the end of the year, how many shares of new stock must the firm issue to

meet today's funding needs? $3$ points

d$.$ Is it realistic to use the MM model in the real world to value stock? $2$ points