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The net income of Novis Corporation, that has 10,000 outstanding shares and 100 percent payout policy, is $32,000. Expected value of firm one year hence is $1,545,600. suitable discount rate for Novis is 12 percent.

A. Determine the current value of the firm?

B. What is ex-dividend price of Novis's stock if board follows its current policy?

C. At dividend declaration meeting, numerous board members claimed that dividend is too meagre and is probably depressing Novis's price. They suggested that Novis sell sufficient new shares to finance a $4.25 dividend.

1. Comment on claim that low dividend is depressing stock price. Describe your argument with calculations.

2. If proposal is adopted, at what price will new shares sell and how many will be sold?

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M935075

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