The firm you are CEO of has a current period cash flow of 2.1 million
Question # 00126965
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Updated on: 10/31/2015 12:41 AM Due on: 10/31/2015
The firm you are CEO of has a current period cash flow of 2.1 million and pays no dividend. The present value of the company's future cash flow is $17.5 million. The company is entirely financed with equity and there are 500,000 shares outstanding. Assume the dividend tax rate is zero. What is the share price of your firm? Suppose you and the board announce a plan to pay 50 percent of the current cash flows as a dividend to its shareholders. How can a shareholder, who owns 1000 shares, achieve a zero pay-out policy on their own?
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Solution: The firm you are CEO of has a current period cash flow of 2.1 million