What's the stock price? What the stock price if pay dividend of 2 per year? The all

 

What's the stock price? 

What the stock price if pay dividend of 2 per year? 

Transcribed Image Text:

The all equity firm ABC Corp has assets-in-place of 900, of which 700 are in fixed, illiquid assets and 200 are in cash. In addition, ABC Corp has a growth opportunity (new investment) which requires 200 of initial investment and has an NPV of 100. The investment needs to be made within the next few days. At the same time, ABC is also deliberating whether to pay a dividend today. ABC has 100 shares outstanding. Note: Unless otherwise stated, assume that markets are perfect and complete. Assume also that firm and market fundamentals will not change over the next few days and that managers maximize shareholder value. (There are five subquestions. This information is valid for all subquestions unless otherwise stated. Each subquestion gives 3 pts). The all equity firm ABC Corp has assets-in-place of 900, of which 700 are in fixed, illiquid assets and 200 are in cash. In addition, ABC Corp has a growth opportunity (new investment) which requires 200 of initial investment and has an NPV of 100. The investment needs to be made within the next few days. At the same time, ABC is also deliberating whether to pay a dividend today. ABC has 100 shares outstanding. Note: Unless otherwise stated, assume that markets are perfect and complete. Assume also that firm and market fundamentals will not change over the next few days and that managers maximize shareholder value. (There are five subquestions. This information is valid for all subquestions unless otherwise stated. Each subquestion gives 3 pts).

Answer rating: 100% (QA)

1 To calculate the stock price we need to determine the total value of the firm which is t... View the full answer