A firm has 80 million shares on issue. Investors expect its end of year share price to be $3.90 and that it will pay a $0.25 dividend at the end of the year. The capitalisation rate which investors apply to the firm is 10%. There are no taxes or imperfections.
b. How would your answer change if the directors suddenly announced that the dividend would be $0.20 rather than $0.25 (and this has no signalling effects)?
Could you explain it step by step please.© BrainMass Inc. brainmass.com October 9, 2019, 5:58 pm ad1c9bdddf
According to the capitalization rate the firm's share will be priced at = Dividend/Capitalization rate
Dividend/Capitalization rate =.25/.10= $2.5 per share
New shares to ...
This provides the steps to calculate the price of share using capitalisation rate