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Zelnor, Inc., is an​ all-equity firm with 150 million shares outstanding currently trading for $ 15.17 per

share. Suppose Zelnor decides to grant a total of 15 million new shares to employees as part of a new compensation plan. The firm argues that this new compensation plan will motivate employees and is better than giving salary bonuses because it will not cost the firm anything. Assume perfect capital markets.

a. If the new compensation plan has no effect on the value of​ Zelnor's assets, what will be the share price of the stock once this plan is​ implemented?

b. What is the cost of this plan for Zelnor​ investors? Why is issuing equity costly in this​ case?

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