Your all-equity company is about to pay a dividend of $50M today. Next year, your company...

 

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Your all-equity company is about to pay a dividend of $50M today. Next year, your company will pay a dividend of $51M. From there, the dividend will grow at 2 percent per year, and will be paid out in growing perpetuity. Assume a dividend discount rate of 10 percent. Also assume that your company has 10M shares outstanding. a) What is the cum-dividend price per share? What is the ex-dividend price per share after the $50M dividend is paid at t=0? (8 points) Suppose that you decide to pay a higher dividend at t=0. Specifically, you decide to pay out a $120M dividend at t=0. You already have $50M, and you will raise the additional $70M by issuing new shares. b) How many shares do you have to sell to raise $70M at t=0? What percentage of the company's shares does this represent? (6 points) c) What is the ex-dividend price after paying the $120M dividend at t=0? (6 points) Your all-equity company is about to pay a dividend of $50M today. Next year, your company will pay a dividend of $51M. From there, the dividend will grow at 2 percent per year, and will be paid out in growing perpetuity. Assume a dividend discount rate of 10 percent. Also assume that your company has 10M shares outstanding. a) What is the cum-dividend price per share? What is the ex-dividend price per share after the $50M dividend is paid at t=0? (8 points) Suppose that you decide to pay a higher dividend at t=0. Specifically, you decide to pay out a $120M dividend at t=0. You already have $50M, and you will raise the additional $70M by issuing new shares. b) How many shares do you have to sell to raise $70M at t=0? What percentage of the company's shares does this represent? (6 points) c) What is the ex-dividend price after paying the $120M dividend at t=0? (6 points)

Answer rating: 100% (QA)

a The present value of the growing perpetuity of dividends can be calculated using the Gordon Growth Model formula PV D r g where D is the dividend paid at t 1 r is the discount rate and g is the grow... View the full answer