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