Consolidated Pasta is currently expected to pay annual dividends of $10 a share in perpetuity on the 3.0 million shares that are outstanding. Shareholders require a rate of return of 8% from Consolidated stock.
a. What is the price of Consolidated stock?
Stock price?
b. What is the total market value of its equity? (Enter your answer in millions.)
Market value of equity?
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.
c. How much new equity capital will the company need to raise to finance the extra dividend payment? (Enter your answer in millions.)
New equity?