Problem: The net income of Novis Corporation is $87,000. The company has 29,000 outstanding shares and a 100 percent payout policy. The expected value of the firm one year from now is $1,765,000. The appropriate discount rate for Novis is 13 percent, and the dividend tax rate is zero.

At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing Novis's price. They proposed that Novis sell enough new shares to finance a $4.20 dividend.

Calculate the current value of the firm.

If the proposal is adopted, at what price will the new shares sell? How many will be sold?