Mr. Shu Qinglin decides to raise next year’s dividend payout to $510,000, while keeping company’s investments and borrowings constant. After next year, the company will go back to its policy of paying out $300,000 per year.
a) The company will pay for the extra dividend payout by issuing new shares at the current market value now. What amount of new equity capital is needed?
b) What would be the present value of total dividends paid to the new shareholders?