MNO Corp. has a market capitalization of $13,500,000 and has 500,000 shares outstanding. MNO currently pays...

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MNO Corp. has a market capitalization of $13,500,000 and has500,000 shares outstanding. MNO currently pays a $2 per-sharedividend. Bob currently owns 100 shares of MNO. Answer thefollowing questions. Assume no taxes.
a. What is the value of Bob’s investment after the dividend ispaid (ie cash from the dividend plus share value)? Keep in mind theshare price change after the dividend is paid.
b. Bob would prefer to receive a $1 per-share dividend. Show howBob could achieve an equivalent cash flow while still invested inMNO. Also show that Bob’s investment in MNO has the same value asin part (a).
c. Bob would prefer to receive a $3 per-share dividend. If it ispossible, show how Bob could achieve an equivalent cash flow whilestill invested in MNO. Also show that Bob’s investment in MNO hasthe same value as in part (a).
d. Now assume Bob pays a 15% tax on dividends. Repeat (a), (b),and (c). Are the results different? Explain.
e. What are two other ‘real-world’ factors that were ignored ina), b), and c) that would alter the results? Explain.

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4.1 Ratings (762 Votes)

Market capitalization of the company13500000 Number of shares outstanding500000 Price per shareMarket capitalizationNumber of shares outstanding1350000050000027 Total dividend paymentDividend per shareNumber of shares outstanding25000001000000 Market capitalization after dividend payment13500000100000012500000 Price per share after dividend See Answer

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Transcribed Image Text

MNO Corp. has a market capitalization of $13,500,000 and has500,000 shares outstanding. MNO currently pays a $2 per-sharedividend. Bob currently owns 100 shares of MNO. Answer thefollowing questions. Assume no taxes.a. What is the value of Bob’s investment after the dividend ispaid (ie cash from the dividend plus share value)? Keep in mind theshare price change after the dividend is paid.b. Bob would prefer to receive a $1 per-share dividend. Show howBob could achieve an equivalent cash flow while still invested inMNO. Also show that Bob’s investment in MNO has the same value asin part (a).c. Bob would prefer to receive a $3 per-share dividend. If it ispossible, show how Bob could achieve an equivalent cash flow whilestill invested in MNO. Also show that Bob’s investment in MNO hasthe same value as in part (a).d. Now assume Bob pays a 15% tax on dividends. Repeat (a), (b),and (c). Are the results different? Explain.e. What are two other ‘real-world’ factors that were ignored ina), b), and c) that would alter the results? Explain.