Company X currently pays a yearly dividend of 0.50 per share and has RS=14%. Company X is going out of business in two years, at which time Company X’s shareholders will receive a liquidating dividend of $85.00. If you instead wanted equal dividends spread out over these two years, which of the following is the closest to what these dividends be?
2. What is the value of a right if a stock’s old price is $25 and the theoretical ex-rights stock price (i.e., TERP) is $19 (assuming everything else constant)?
3. Company X has stated that it plans on issuing a dividend of $.60 a share one year from today and then issuing a final liquidating dividend of $2.20 a share two years from today. Company X’s stock follows movements in the market index exactly, and you have estimated the risk-free rate and the market risk premium as 3% and 6%, respectively. Ignoring taxes, what is the value of one share of this stock today?
