Mahomes Company has a current period cash flow of $1.5 million and pays no dividends. The present value of the company's future cash flows is $28 million. The company is entirely financed with equity and has 770,000 shares outstanding. Assume the dividend ax rate is zero. . What is the share price of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price

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
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Mahomes Company has a current period cash flow of $1.5 million and pays no dividends.
The present value of the company's future cash flows is $28 million. The company is
entirely financed with equity and has 770,000 shares outstanding. Assume the dividend
tax rate is zero.
a. What is the share price of the company's stock? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
Share price
b. Suppose the board of directors of the company announces its plan to pay out
50 percent of its current cash flow as cash dividends to its shareholders. Jeff Miller,
who owns 1,200 shares of the company's stock, wants to achieve a zero payout policy
on his own, by buying or selling shares. How many shares should he sell or buy? (Do
not round intermediate calculations and round your answer to 2 decimal places,
e.g., 32.16.)
Number of shares to
Transcribed Image Text:Mahomes Company has a current period cash flow of $1.5 million and pays no dividends. The present value of the company's future cash flows is $28 million. The company is entirely financed with equity and has 770,000 shares outstanding. Assume the dividend tax rate is zero. a. What is the share price of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price b. Suppose the board of directors of the company announces its plan to pay out 50 percent of its current cash flow as cash dividends to its shareholders. Jeff Miller, who owns 1,200 shares of the company's stock, wants to achieve a zero payout policy on his own, by buying or selling shares. How many shares should he sell or buy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Number of shares to
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