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? Do you have to include present value when calculating

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? Do you have to include present value when calculating

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 8P

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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? Remember the amount is 50 shares to begin with in the first year
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