Portman Industries just paid a dividend of $2.00 per share. Portman expect the coming year to be very good, and its dividend is expected to grow by 15% over the year. After the next year, though, Portman's dividend is expected to grow at a constant rate of 6.4% per year. The risk-free rate is 6% and the market risk premium is 4%. If Portman's beta is 1.1 and the current intrinsic value of the firm's stock is $57.50, answer the following two questions:
A) Portman has 500k shares outstanding and Judy Davis, an investor, hold 40k shares. Suppose Portman is considering issuing 100k new shares at a price of $50 per share. IF the new shares are sold to outside investors, how much will Judy's investment in Portman be diluted on a per-share basis? (choices = $0.58, 1.25, 0.38, 0.80, or 1.01)
B) Judy could be protected by dilution if the corporate charter contains a preemptive right provision. If Judy fully exercised that provision and avoided dilution, she would hold how many shares worth what after the new stock issue? choices (40k, 44k, 48k, 52k, or 56k shares) choices ($2,590,400; 2,700,000; 2,490,800; 2,644,000; or 2,539,600)