A firm has $300 million of assets that includes $50 million of cash and 10 million shares outstanding. The firm uses $30 million of its cash to pay dividends. If an investor has 1 000 shares, how many shares must he sell to create a homemade dividend of $3 900?

Question

Quizplus · Accepted Answer

After paying the dividend, the firm will have $20 million cash left ($50 million - $30 million).

To create a homemade dividend, the investor needs to sell some shares. Let X be the number of shares the investor needs to sell to create a dividend of $3,900.

The total dividend paid out by the investor is: 
Dividend = X/10 million * ($300 million - $20 million) / 10 million * $3,900

Simplifying, we get: 
$3,900 = 0.032 * X

Solving for X, we get: 
X = $3,900 / 0.032 
X = 121,875

The investor owns 1,000 shares, so he needs to sell:

X / 1,000 shares = 121,875 / 1,000 shares = 121.875 shares

Rounding to the nearest tenth, the investor needs to sell 33.3 shares (B).

A Firm Has $300 Million of Assets That Includes $50