You own 100 shares of stock of unlevered Shaan Company which has 1,000 shares outstanding. Shaan plans to pay $2,200 dividend at the end of the current year (i.e., one year from today) and a liquidating dividend of $4,840 at the end of 2 years from today. The required return on Shaan's stock is 10 percent. Ignoring taxes and transaction costs: a) What is the value of your shares of stock? Show calculations to support your answer. b) Suppose shareholders want Shaan to increase its $2,200 dividend payout at the end of the current year to $3,102 and Shaan increases the dividend by issuing at the end of the current year new stock worth the amount needed to increase the dividend. What will be the value of your shares under this scenario? Show calculations to support your answer. c) How many shares will be issued to the new stockholders at the end of the current year? Show calculations.
You own 100 shares of stock of unlevered Shaan Company which has 1,000 shares outstanding. Shaan plans to pay $2,200 dividend at the end of the current year (i.e., one year from today) and a liquidating dividend of $4,840 at the end of 2 years from today. The required return on Shaan's stock is 10 percent. Ignoring taxes and transaction costs: a) What is the value of your shares of stock? Show calculations to support your answer. b) Suppose shareholders want Shaan to increase its $2,200 dividend payout at the end of the current year to $3,102 and Shaan increases the dividend by issuing at the end of the current year new stock worth the amount needed to increase the dividend. What will be the value of your shares under this scenario? Show calculations to support your answer. c) How many shares will be issued to the new stockholders at the end of the current year? Show calculations.
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 2P
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Question
Transcribed Image Text:You own 100 shares of stock of unlevered Shaan Company which has 1,000 shares outstanding.
Shaan plans to pay S2,200 dividend at the end of the current year (i.e., one year from today) and
a liquidating dividend of $4,840 at the end of 2 years from today. The required return on Shaan's
stock is 10 percent. Ignoring taxes and transaction costs:
a) What is the value of your shares of stock? Show calculations to support your answer.
b) Suppose shareholders want Shaan to increase its $2,200 dividend payout at the end of the
current year to $3,102 and Shaan increases the dividend by issuing at the end of the
current year new stock worth the amount needed to increase the dividend. What will be
the value of your shares under this scenario? Show calculations to support your answer.
c) How many shares will be issued to the new stockholders at the end of the current year?
Show calculations.
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