Homework Answers
a)
arrears = dividend * number of years * total number of shares
= 4.75*6*510,000
= $14,535,000
b)
future stock price = EPS * P/E ratio
= 4.16 * 17
= 70.72
current stock price = present value of all future cash flows
Common stock = (1.50 / 1.12) + (1.60 / 1.12^2) + (1.70 / 1.12^3) + [(1.80+70.72) / 1.12^4]
= $49.91
c)
number of shares to be issued = Dividend in arrears / common stock
= 14535000 / 49.91
= 291,209
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