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Consolidated Pasta is currently expected to pay annual dividends of $10 a share in* perpetuity on the 2 . 0 million shares that are outstanding .

I cannot figure out the correct answers to D. & E. I know the following answers to be correct. Please help. Thank you.


A. $125

B. $250 million

C. $20 million

D. ??????

E. ??????

F. The Same


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CF17.2.png

Consolidated Pasta is currently expected to pay annual dividends of $10 a share in*
perpetuity on the 2 . 0 million shares that are outstanding . Shareholders require a rate of
return of 8 % from Consolidated stock .*
2 . What is the price of Consolidated stock ? ( Do not round intermediate calculations . )
Stock price
6 . What is the total market value of its equity ? ( Enter your answer in millions . "
Market value of equity
million
Consolidated now decides to increase next year's dividend to $20 a share , without*
changing it's investment or borrowing plans . Thereafter the company will revert to its policy
of distributing $ 10 million a year .\
C. How much new equity capital will the company need to raise to finance the extra
dividend payment ? ( Enter your answer in millions . )
New equity
million*
d . What will be the total present value of dividends paid each year on the new shares that*
Present value
million
. . What will be the transfer of value from the old shareholders to the new shareholders ?"
( Enter your answer in millions . )
Transfer of value*
million
F. Is this figure more than , less than , or the same as the extra dividend that the old
shareholders will receive ?
OMore than
OLess than
The same

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