White Chocolate Co. has a current period cash flow of $1.2 million and pays no dividends. The present value of the company’s future cash flows is $17 million. The company is entirely financed with equity, and has 650,000 shares outstanding. Ignore taxes. 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.) 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. How can a shareholder who owns 1,200 shares of the stock achieve a zero payout policy on his own? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
White Chocolate Co. has a current period cash flow of $1.2 million and pays no dividends. The present value of the company’s future cash flows is $17 million. The company is entirely financed with equity, and has 650,000 shares outstanding. Ignore taxes. 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.) 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. How can a shareholder who owns 1,200 shares of the stock achieve a zero payout policy on his own? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
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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| White Chocolate Co. has a current period cash flow of $1.2 million and pays no dividends. The present value of the company’s future cash flows is $17 million. The company is entirely financed with equity, and has 650,000 shares outstanding. Ignore taxes. |
| 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.) |
| 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. How can a shareholder who owns 1,200 shares of the stock achieve a zero payout policy on his own? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
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