The Mann Company currently has 234,000 outstanding shares selling at $138 each.

Question

The Mann Company currently has 234,000 outstanding shares selling at $138 each. The firm is contemplating the declaration of a dividend of $4 at the end of the fiscal year that just began. Assume there are no taxes on dividends. Answer the following questions based on the Miller and Modigliani model, which is discussed in the text. a. What will be the price of the stock on the ex-dividend date if the dividend is declared? (Do not round intermediate calculations.) Price of the stock b. What will be the price of the stock at the end of the year if the dividend is not declared? (Do not round intermediate calculations.) Price of the stock c. If Mann makes $5.9 million of new investments at the beginning of the period, earns net income of $3.3 million, and pays the dividend at the end of the year, how many shares of new stock must the firm issue to meet its funding needs? (Do not round intermediate calculations and round your answer to the nearest whole number (e.g., 32).) Number of shares

Explanation / Answer

a.If dividend is declared the price of the stock will drop on the ex dividend date by the value of dividend $ 4.It will then trade for $ 134 .

b.If dividend is not declared the price will remain at $ 138.

c.Mann's outflow for investment is $ 5900000.In one year the net income would be $3300000 and it will pay $ 936000 as dividend.But Mann needs the money now to purchase the investments.He will need to sell shares at $ 138 to purchase $5900000 worth of investments = $ 5900000 / 138 = 42754 shares.

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