a.
To determine: The Current Value of Firm.
Introduction: The term dividends allude to that portion of proceeds of an organization which is circulated by the organization among its investors. It is the remuneration of the investors for investments made by them in the shares of the organization.
a.

Answer to Problem 14QP
The Current Value of Firm is $1,625,178.57.
Explanation of Solution
Determine the current value of firm
Therefore the current value of firm is $1,625,178.57
b.
To determine: The Ex-Dividend Price of the Company.
b.

Answer to Problem 14QP
The Ex-Dividend Price of the Company is $61.61.
Explanation of Solution
Determine the current stock price
Therefore the current stock price is $65.01
Determine the present dividend of the company
Therefore the present dividend of the company is $3.40
Determine the ex-dividend price of the company
Therefore the ex-dividend price of the company is $61.61
c. i.
To determine: The Reasons on low dividends depressing the stock prices.
c. i.

Explanation of Solution
Determine the value of dividends
Therefore the value of dividends is $115,000
Determine the amount raised in dollars
The organization is required to increase the funds by funding the dividend payments in dollars.
Therefore the amount raised in dollars is $30,000
Determine the value of new shareholder in one year
The new shareholders value is raised only if the company sell the new equity in order to maintain the all-equity financing.
Therefore the value of new shareholder in one year is $33,600
Determine the value of old shareholder in one year
As a result of new shareholder value, the value of old shareholder will fall.
Therefore the value of old shareholder in one year is $1,691,400
Determine the current value of firm
Therefore the current value of firm is $1,625,178.57
The Reasons on low dividends depressing the stock prices is as follows:
- As indicated by Modigliani and Miller, the facts cannot prove that the lesser dividend is depressing the cost.
- According to the dividend policy it is considered as inappropriate, the dividend level ought not make any differences.
- Any resources not circulated as dividends add to the estimation of the firm, consequently the price of stock.
- These managers simply need to change the period of dividends.
- The estimation of the firm is unaltered by their proposition. Hence, the price of share will be remain same.
- Therefore the value of firm is similar from part a, hence the change in dividend will have no impact.
c. ii.
To determine: The Price of New Shares and the number of shares sold.
c. ii.

Answer to Problem 14QP
The Price of New Shares is $60.41 and the number of shares sold 497 shares.
Explanation of Solution
Determine the present value of stock
Therefore the present value of stock is $1,510,178.57
Determine the price of new shares
Therefore the price of new shares is $60.41
Determine the number of shares sold
Therefore the number of shares sold is 497 shares
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Chapter 19 Solutions
UPENN: LOOSE LEAF CORP.FIN W/CONNECT
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