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Homework answers / question archive / A firm has a total market value of assets of $300 million that includes $60 million of cash and 10 million shares outstanding
A firm has a total market value of assets of $300 million that includes $60 million of cash and 10 million shares outstanding. The firm uses $30 million of its cash to pay dividends. If an investor has 1000 shares, how many shares must he sell to create a homemade dividend of $3,900?
Market value of assets before Dividend payment = $300 Million
Number of shares outstanding = 10 Million shares
Share price before Dividend payment= Market value of assets / Number of shares outstanding
=>Share price before Dividend payment= $300 Million / 10 Million shares
=>Share price before Dividend payment=$30 per share
After $30 Million of cash dividend payment, now the Market value of assets will be = $300 Million - $30 Million = $270 Million
Share price after Dividend payment=$270 Million / 10 Million shares = $27 Per share.
Divdend payment per share = $30 Million / 10 Million shares = $3 per share.
If an investor has 1000 shares , then he will receive dividend of = $3 * 1000 = $3000
To create a home made dividend of $3900, the investor needs to sell that much number of share , so that the proceeds from sale of share= $3900-$3000 = $900
Numer of share to be sold = $900 / Share price after Dividend payment
=>Numer of share to be sold = $900 / $27
=>Numer of share to be sold =33.33 shares
Total amount received = $3000 Dividend receipt + $900 From sale of shares = $3900
