a. What is the share price of Morgan Stanley stock? b. Suppose the board of directors of Morgan Stanley announces its plan to payout 40% of its current cash flow as dividends to its shareholders. How can Andy, who owns 800 shares of Morgan Stanley stock, achieve a zero payout policy on his own?
a. What is the share price of Morgan Stanley stock? b. Suppose the board of directors of Morgan Stanley announces its plan to payout 40% of its current cash flow as dividends to its shareholders. How can Andy, who owns 800 shares of Morgan Stanley stock, achieve a zero payout policy on his own?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
![Morgan Stanley has a current cash flow (at
time 0) of $3.4 m and pays no dividends. The
present value of the company's future cash
flows is $14.6 m. The firm is entirely financed
with equity and has 400,000 shares
outstanding. Assume the dividend tax rate is
zero.
a. What is the share price of Morgan Stanley
stock?
b. Suppose the board of directors of Morgan
Stanley announces its plan to payout 40% of
its current cash flow as dividends to its
shareholders. How can Andy, who owns 800
shares of Morgan Stanley stock, achieve a
zero payout policy on his own?
formulation:
DPS= Tol Div (or excess cash) / No. of share
[for unlevered firm] Share price = V/no. of
share
P ex-div = P - DPS
EPS= Earnings (assume a constant) / no. of
share
P.E. = stock price/ EPS
No. of share repurchase = Excess Cash / Stock
Price](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3d49a1bf-def0-472f-94db-660c9693a140%2Fa404a831-f477-4709-87f1-9e5f76c5cd43%2F51tqyl_processed.png&w=3840&q=75)
Transcribed Image Text:Morgan Stanley has a current cash flow (at
time 0) of $3.4 m and pays no dividends. The
present value of the company's future cash
flows is $14.6 m. The firm is entirely financed
with equity and has 400,000 shares
outstanding. Assume the dividend tax rate is
zero.
a. What is the share price of Morgan Stanley
stock?
b. Suppose the board of directors of Morgan
Stanley announces its plan to payout 40% of
its current cash flow as dividends to its
shareholders. How can Andy, who owns 800
shares of Morgan Stanley stock, achieve a
zero payout policy on his own?
formulation:
DPS= Tol Div (or excess cash) / No. of share
[for unlevered firm] Share price = V/no. of
share
P ex-div = P - DPS
EPS= Earnings (assume a constant) / no. of
share
P.E. = stock price/ EPS
No. of share repurchase = Excess Cash / Stock
Price
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