What is the ex-dividend price of the company stock

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The net income of Zippy Corporation is $92,000. The company has 25,000 outstanding shares and a 100 percent payout policy. The expected value of the firm one year from now is $1,790,000. The appropriate discount rate for the company is 11 percent and the dividend tax rate is zero.

Problem (a) What is the current value of the firm assuming the current dividend has not yet been paid?

Problem (b) What is the ex-dividend price of the company's stock if the board follows its current policy?

Problem (c) At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing the company's price. They proposed that the company sell enough new shares to finance a $5.20 dividend. Comment on the claim that low dividend is depressing the stock price.

Reference no: EM133000632

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