# Gibson Co. has a current period cash flow of $1.2 million and pays no dividends. The present...

## Question:

Gibson Co. has a current period cash flow of $1.2 million and pays no dividends. The present value of the company?s future cash flows is $20 million. The company is entirely financed with equity and has 800,000 shares outstanding. Assume the dividend tax rate is zero. a. What is the share price of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price $ 26.5 b. Suppose the board of directors of the company announces its plan to pay out 50 percent of its current cash flow as cash dividends to its shareholders. Jeff Miller, who owns 1,500 shares of the company's 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 answer to 2 decimal places, e.g., 32.16.) Number of shares to

## Stock Price:

Stock price is the market value of a stock at the specific time. The stock price will be judged by the intrinsic value and the noise of the market. The investor behavior would play the important role in pricing a stock in the exchange market as well.

## Answer and Explanation: 1

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View this answer**A. Calculate the stock price:**

- Current period CF = $1.2M
- PV of all future CFs = $20M

{eq}Price_{stock} = \displaystyle\frac{\$1.2M + \$20M}{800,000} =...

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Chapter 16 / Lesson 1Dividends are incentives in the form of payments to shareholders of a company. Explore the different types of dividends and the standard method of payments that they occur in.

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