WeDon’tWork Inc. is a company that provides shared leisure space for young adults. The company has $10 million in excess cash on hand, no debt, and 20 million shares of stock outstanding worth $10 per share. The company plans to distribute its excess cash by paying a $0.50 special dividend.

a. Assuming markets are perfect, what is the stock’s ex-dividend price?

b. Suppose the board decides to repurchase shares on the open market with its excess cash rather than paying a dividend. What is price per share when the repurchase is completed?

c. Which policy, dividend or repurchase, makes shareholders better off?