Gibson Co. has a current period cash flow of $1.3 million and pays no dividends. The present value of the company’s future cash flows is $16 million. The company is entirely financed with equity, and has 690,000 shares outstanding. Assume the dividend tax rate is zero.
a. What is the share price of the Gibson stock? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)
Share price $
b. Suppose the board of directors of Gibson Co. announces its plan to pay out 50 percent of its current cash flow as cash dividends to its shareholders. Jeff Miller, who owns 2,100 shares of Gibson stock, wants to achieve a zero payout policy on his own, by buying or selling shares. How many shares should he sell or buy? (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).)
Number of shares to (buy/sell)