7. Natsam Corporation has $250 million of excess cash. The firm has no debt and 500 million...

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7. Natsam Corporation has $250 million of excess cash. The firm has no debt and 500 million shares outstanding with a current market price of $15 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 perfect capital market, which policy in part

(a) or

(b) makes investors in the firm better off?

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Fundamentals Of Corporate Finance

ISBN: 9781292018409

3rd Global Edition

Authors: Berk, Peter DeMarzo, Jarrad Harford

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