At present, total dividends for each of the next two years areset equal to the cash flow of $10,000 per year. There are 100shares outstanding, so the dividend per share is $100. The priceper share at the moment is $173.55 and the required return ofinvestors is 10%. There is an alternative choice of paying$11,000 total dividends in the first year ($110 per share),followed by a liquidating dividend of $8,900 ($89 per share) inthe second. You prefer the first alternative but the firm’smanagement adopts the second alternative. You have 50 shares tobegin with and if you choose to create homemade dividends, howmany shares will you have at the end of the first year?
At present, total dividends for each of the next two years areset equal to the cash flow of $10,000 per year. There are 100shares outstanding, so the dividend per share is $100. The priceper share at the moment is $173.55 and the required return ofinvestors is 10%. There is an alternative choice of paying$11,000 total dividends in the first year ($110 per share),followed by a liquidating dividend of $8,900 ($89 per share) inthe second. You prefer the first alternative but the firm’smanagement adopts the second alternative. You have 50 shares tobegin with and if you choose to create homemade dividends, howmany shares will you have at the end of the first year?
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
At present, total dividends for each of the next two years are
set equal to the cash flow of $10,000 per year. There are 100
shares outstanding, so the dividend per share is $100. The price
per share at the moment is $173.55 and the required return of
investors is 10%. There is an alternative choice of paying
$11,000 total dividends in the first year ($110 per share),
followed by a liquidating dividend of $8,900 ($89 per share) in
the second. You prefer the first alternative but the firm’s
management adopts the second alternative. You have 50 shares to
begin with and if you choose to create homemade dividends, how
many shares will you have at the end of the first year?
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