Favorites Tools Help Energy Bank of America Health A a Ally

Favorites Tools Help Energy ) Bank of America Health A. a Ally Auto Finance Vehicle Login Access Managers. Castlighteet Mortgage Water -Navient apter 17? Help Sav 2 Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 2.8 million shares that are outstanding. Shareholders require a rate of return of 8% from Consolidated stock. a. What is the price of Consolidated stock? (Do not round intermediate calculations.) b. What is the total market value of its equity? (Enter your answer in millions.) Consolidated now decides to increase next year\'s dividend to $20 a share, without changing its investment or borrowing plans Thereafter the company will revert to its policy of distributing $10 million a year

Solution

Price of Stock = Dividends/Cost of Equity = 10/8% = 12.5

Total Market value of Stock Price of stock * No of shares outstanding = 12.5 * 2.8 million = $ 35 million

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