| Suppose that you own 2,200 shares of Nocash Corp. and the company is about to pay a 25% stock dividend. The stock currently sells at $100 per share. |
| a. | What will be the number of shares that you hold after the stock dividend is paid? (Do not round intermediate calculations.) |
| Number of shares |
| b. | What will be the total value of your equity position after the stock dividend is paid? (Do not round intermediate calculations.) |
| Total value | $ |
| c. | What will be the number of shares that you hold if the firm splits five for four instead of paying the stock dividend? |
| Number of shares hold |
| 2. Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 1.5 million shares that are outstanding. Shareholders require a 10% rate of return from Consolidated stock. |
| a. | What is the price of Consolidated stock? |
| Stock price | $ |
| b. | What is the total market value of its equity? (Enter your answer in millions.) |
| Market value of equity | $ |
| Consolidated now decides to increase next year’s dividend to $20 a share, without changing its investment or borrowing plans. Thereafter the company will revert to its policy of distributing $10 million a year. |
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round intermediate was first posted on March 12, 2020 at 11:57 am.
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