You own $200$ shares of the stock of unlevered Siena company which has $1,000$ shares outstanding. Siena plans to pay $$2,300$ dividend at the end of the current year $($i$.$e$.$ at the end of one year from today$)$ and a dividend of $$5,290$ at the end of $2$ years from today. The required $($expected$)$ return on Siena's stock is $15\%.$ Ignoring personal taxes and transaction costs:

What will be the value of your shares of stocks?

Suppose shareholders want Siena to increase its $$2,300$ dividend payout at the end of the current year by $$943$ and Siena finances this increase by issuing new stock of value $$943$ at the end of the current year.

What will be the value of your shares under this scenario?

  

How many new shares will be issued to the new stockholders at the end of the current year?

 

 

  

 

Suppose Siena does not increase its $$2,300$ dividend payout at the end of the current year by issuing new stock of value $$943$ at the end of the current year. How would you then create a home$-$made dividend to increase your dividend at the end of the current year?

Would your creation of home$-$made dividends in Question $13$ above increase the value of your shares?

 

Answer rating: 100% (QA)

To calculate the value of your shares of Siena stock we can use the dividend discount model DDM formula P0 D11 r D21 r2 Where P0 current stock price D... View the full answer