Problem 17-2O Payout Policy (LO3) Little Oil has outstanding 1 million shares with a total market value of $33 million. The firm is expected to pay $1.00 million of dividends next year, and thereafter, the amount paid out is expected to grow.by 4% a year in perpetuity. Thus, the expected dividend is $104 million in year 2, $1.0816 million in year 3, and so on However, the company has heard that the value of a share depends on the flow of dividends, and therefore, it announces that next year's dividend will be increased to $2 million and that the extra cash will be raised immediately afterward by an issue of shares. After that, the total amount paid out each year will be as previously forecasted, that is. $104 million in year 2 and increasing by 4% in each subsequent year a. At what price will the new shares be issuedin year 1? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. How many shares will the firm need to issue? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
Problem 17-2O Payout Policy (LO3) Little Oil has outstanding 1 million shares with a total market value of $33 million. The firm is expected to pay $1.00 million of dividends next year, and thereafter, the amount paid out is expected to grow.by 4% a year in perpetuity. Thus, the expected dividend is $104 million in year 2, $1.0816 million in year 3, and so on However, the company has heard that the value of a share depends on the flow of dividends, and therefore, it announces that next year's dividend will be increased to $2 million and that the extra cash will be raised immediately afterward by an issue of shares. After that, the total amount paid out each year will be as previously forecasted, that is. $104 million in year 2 and increasing by 4% in each subsequent year a. At what price will the new shares be issuedin year 1? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. How many shares will the firm need to issue? (Do not round intermediate calculations. Round your answer to the nearest whole number.)
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN:9781305635937
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter14: Distributions To Shareholders:Dividends And Share Repurchases
Section: Chapter Questions
Problem 8P
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