Q1.) Suppose that you own 1,200 shares of Nocash Corp. and the company is about to pay a 25% stock dividend. The stock currently sells at $115 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__________________
Q2.) Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 2.5 million shares that are outstanding. Shareholders require a rate of return of 10% 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________________Millions
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.
c. How much new equity capital will the company need to raise to finance the extra dividend payment? (Enter your answer in millions.)
New Equity_____________Million
d. What will be the total present value of dividends paid each year on the new shares that the company will need to issue? (Enter your answer in millions.)
Present Value___________Million
e. What will be the transfer of value from the old shareholders to the new shareholders? (Enter your answer in millions.)
Transfer of Value__________Million