A firm has $300 million of assets 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?

Question

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The investor has 1000 shares and wants to create a homemade dividend of $3,900. The firm has 10 million shares outstanding and paid $30 million in dividends. So, each share received $3 in dividends. To create a homemade dividend of $3,900, the investor needs to sell 1000 shares * $3 / $3,900 = 33.33 shares.

A Firm Has $300 Million of Assets That Includes $60