Your company follows the policy to pay all the free cashflow to equityholders via dividend. The free cashflow next year will be 6,000,000 USD and there are 2,000,000 shares outstanding. The dividend is expected to increase at a 5% rate. The company thinks to issue new equity for 4,000,000 USD at the end of the year to increase the amount paid out as dividend (note: the new shareholders will also receive the dividend). The levered return on equity is 16%. a) What will be the dividend paid next year? b) What will be the ex-dividend price next year?

Your company follows the policy to pay all the free cashflow to equityholders via dividend. The free cashflow next year will be 6,000,000 USD and there are 2,000,000 shares outstanding. The dividend is expected to increase at a 5% rate. The company thinks to issue new equity for 4,000,000 USD at the end of the year to increase the amount paid out as dividend (note: the new shareholders will also receive the dividend). The levered return on equity is 16%. a) What will be the dividend paid next year? b) What will be the ex-dividend price next year?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 4P

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