Question

Problem 14-13 Dividend Policy [LO 2] The Quick Buck Company is an all-equity firm that has been in existence for the past three years. Company management expects that the company will last for two more years and then be dissolved. The firm will generate cash flows of $620,000 next year and $980,000 in two years, including the proceeds from the liquidation. There are 26,000 shares of stock outstanding and shareholders require a return of 11 percent.

a. What is the current price per share of the stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. The board of directors is dissatisfied with the current dividend policy and proposes that a dividend of $740,000 be paid next year. To raise the cash necessary for the increased dividend, the company will sell new shares of stock. How many shares of stock must be sold? What is the new price per share of the existing shares of stock? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Answer 1

Answer:

a. The current price per share of the stock is $ 52.07

b. Shares of stock that must be sold in order to fulfill the additional cash required for the increased dividend is 2304.59 shares.

The new price per share of the existing shares of stock after the payment of proposed dividend is $ 47.83

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