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Natsam Corporation has $285 million of excess cash. The firm has no debt and 549 million shares outstanding with a current market price of $11 per share. Natsam's board has decided to pay out this cash as a one-time dividend. a) What is the ex-dividend price of a share in a perfect capital market? b) If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market, what is the price of the shares once the repurchase is complete? c) In a per

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jepessoa

Answer:

a) $10.48

b) $11

c) option b would make investors better off

Explanation:

stock's current market price = $11

dividend per stock = $285,000,000 / 549,000,000 stocks = $0.5191

ex-dividend price per stock = stock's current market price - dividend per stock = $11 - $0.52 = $10.48

in a perfect capital market, the repurchase of stocks should not change Natsam's stock value, so it should remain at $11 per stock.

part c is missing, but I looked for similar questions and found this:

"c) In a perfect capital market, which policy in part (a) or (b) makes investors in the firm better off?"

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