The net income of Steel City Corporation is $90,000. The company has 20,000 outstanding shares, and a 100 percent payout policy. The expected value of the firm one year from now is $1,780,000. The appropriate discount rate is 11 percent, and there are no taxes. a.What is the current value of the company assuming the current dividend has not yet been paid? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)b.What is the ex-dividend price of the company’s stock if the board follows its current policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing the company's stock price. They proposed that the company sell enough new shares to finance a dividend of $5.70. c-1.Calculate the value of the company under this proposal. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)c-2.If the proposal is adopted, at what price will the new shares sell? How many shares will be sold? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) PrevQuestion 5 of 5 Total5 of 5Visit question mapThis is the last question in the assignment. To submit, use Alt + S. To access other questions, proceed to the question map button.

The dividend is defined as the total return earned by the shareholders on the investment they made…

Answered: Calculate the value of the company…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 7P

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The net income of Steel City Corporation is $90,000. The company has 20,000 outstanding shares, and a 100 percent payout policy. The expected value of the firm one year from now is $1,780,000. The appropriate discount rate is 11 percent, and there are no taxes.

a.	What is the current value of the company assuming the current dividend has not yet been paid? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	What is the ex-dividend price of the company’s stock if the board follows its current policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing the company's stock price. They proposed that the company sell enough new shares to finance a dividend of $5.70.

c-1.	Calculate the value of the company under this proposal. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c-2.	If the proposal is adopted, at what price will the new shares sell? How many shares will be sold? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)