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 6.0% per year. The risk-free rate is 6% and the market risk premium is 4%. Portman's beta is 1.1.
What is the current intrinsic value of the firm's stocK?
1) Portman has 500,000 shares outstanding and Judy Davis, and investor, holds 40,000 shares. Suppose Portman is considering issuing 100,000 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?
2) Judy could be protected by dilution if the corporate charter contains a (pick one: bond indenture, preemptive right, takeover, proxy or founders share) provision. If Judy fully exercised that provision and avoided dilution, she would hold (pick one: 52,000 shares, 48,000 shares, 44,000 shares, 56,000 shares or 40,000 shares) worth (pick one: $2,539,600 , $2,590,400 , $2, 644,000 , $2,490,800 or $2,700,000) after the new stock issue.