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Question: world star company is an all equity firm there are...

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World Star Company is an all equity firm. There are 1,000,000 shares outstanding. The firm value is estimated to be $41 million. In the most current year, the cash flow is $3,000,000. The company just announces to pay out 60% of its current year cash flow as cash dividends.

Assume the dividend tax rate is zero.

Required:

(a)   Determine the share price of the World Star Company.    (2 marks)

 (b) Determine the ex-dividend share price of the stock of the World Star Company.    (4 marks) 

(c)   Eliza is one of the shareholders of World Star Company. She prefers 40% payout policy. She currently holds 2,000 shares. Recommend how she could achieve a 40% payout policy on her own. Show by calculation that your proposal could exactly achieve what she wants. (Assume fractional shares can be traded.)    (8 marks)

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