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XYZ Corp. has $46 million dollars that it wishes to pay out as dividends, and a...

XYZ Corp. has $46 million dollars that it wishes to pay out as dividends, and a cost of equity of 0.21. If it pays out $18 million in dividends today, what dividend should they pay 1 year from today to make shareholders indifferent between this dividend scheme and one where shareholders get all of the cash today?

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Answer #1

Calculating Present Value and equating,

46,000,000 = 18,000,000 + X/(1.21)

X = $23,140,496

Dividend in Year 1 = $23,140,496

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