Angina, Inc., has 55 million shares outstanding. The firm is considering issuing
ID: 2781730 • Letter: A
Question
Angina, Inc., has 55 million shares outstanding. The firm is considering issuing an additional1.0 million shares. After selling these shares at their $20 per share offering price and netting 95% of the sale proceeds, the firm is obligated by an earlier agreement to sell an additional 250,000 shares at a reduced price, netting 90% of the offering price. In total, how much cash will the firm net from these stock sales? How much cash in total will the firm net from these stock sales?
Stacker Weight Loss currently pays an annual year-end dividend of $1.10 per share. It plans to increase this dividend by 4.0% next year and maintain it at the new level for the foreseeable future. If the required return on this firm's stock is 9%, what is the value of Stacker's stock?
Brash Corporation initiated a new corporate strategy that fixes its annual dividend at $2.26 per share forever. If the risk-free rate is 4.1% and the risk premium on Brash's stock is 11.7%, what is the value of Brash's stock?
Explanation / Answer
a) Cash = 1,000,000 x 20 x 95% + 250,000 x 20 x 90% = 23,500,000
b) Using DCF method, Value of stock = D0 x (1 + g) / (r - g) = 1.1 x (1 + 4%) / (9% - 4%) = 22.88
c) Value of stock = Dividend / Required rate = 2.26 / (4.1% + 11.7%) = $14.30