What price will the new shares sell

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Reference no: EM132513096

The net income of Novis Corporation is $85,000. The company has 25,000 outstanding shares and a 100% payout policy. The expected value of the firm one year from now is $1,725,000. The appropriate discount rate for Novis is 12%, and the dividend tax rate is 0.

Question 1: What is the current value of the firm assuming the current dividend has not yet been paid?

Question 2: What is the ex-dividend price of Novis's stock if the board follows its current policy?

Question 3: At the dividend declaration meeting, several board members claimed that the dividend is too meager and is probably depressing Novis's price. They proposed that Novis sell enough new shares to finance a $4.60 dividend. Comment on the claim that the low dividend is depressing the stock price. Support your argument with calculations. If the proposal is adopted, at what price will the new shares sell? How many will be sold?

Reference no: EM132513096

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