The QUICK Buck Company ts an all-equity film that has been in existence for the

Question

The QUICK Buck Company ts an all-equity film 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 $820,000 next year and $1.280,000 in two years, including the proceeds from the liquidation. There are 36,000 shares of stock outstanding and shareholders require a return of 14 percent What is the current price per share of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g.. 32.16).) The Board of Directors is dissatisfied with the cunent dividend policy and proposes that a dividend of $920,000 be paid next year. To raise the cash necessary for the increased dividend, the company will sell new snares of stock. How many shares of stock must be sold? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g.. 32.16).) What is the new price per share of the existing shares of stock? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Requirement 1

Firm Value = 820000/(1+14%) + 1280000/(1+14%)^2

Firm Value = $ 1,704,216.68

Share Price = Firm Value /No of Outstanding Share

Share Price = 1704216.68/36000

Share Price = $ 47.34

Requirement 2

No of Share Sold = (920000-820000)/47.34

No of Share Sold = 2112.38

Requirement 3

Firm Value = 920000/(1+14%) + 1280000/(1+14%)^2

Firm Value = $ 1,791,935.98

New Share Price = Firm Value /No of Outstanding Share

New Share Price = 1,791,935.98/(36000+2112.38)

New Share Price = $ 47.02

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