Refer back to question 15. Assume no taxes and a stock price immediately after the dividend announcement

Question:

Refer back to question 15. Assume no taxes and a stock price immediately after the dividend announcement of $100.

(a) If you own 100 shares, what is the value of your investment? How does the dividend payment affect your wealth?

(b) Now suppose that Formaggio Vecchio cancels the dividend payment and announces that it will repurchase 1 percent of its stock at $100. Do you rejoice or yawn? Explain.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...