Gibson Co. has a current period cash flow of $1.1 million and pays no dividends. The present value of the company's future cash flows is $15 million. The company is entirely financed with equity and has 600,000 shares outstanding. Assume the dividend tax rate is zero. a. What is the share price of the Gibson stock? b. Suppose the board of directors of Gibson Co. announces its plan to pay out 50 percent of its current cash flow as cash dividends to its shareholders. How can Jeff Miller, who owns 1,000 shares of Gibson stock, achieve a zero payout policy on his own?

Gibson Co. has a current period cash flow of $1.1 million and pays no dividends. The present value of the company's future cash flows is $15 million. The company is entirely financed with equity and has 600,000 shares outstanding. Assume the dividend tax rate is zero. a. What is the share price of the Gibson stock? b. Suppose the board of directors of Gibson Co. announces its plan to pay out 50 percent of its current cash flow as cash dividends to its shareholders. How can Jeff Miller, who owns 1,000 shares of Gibson 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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