1. assume the firm uses the 25000 excess cash to buy back its stock at 5 per shares. you own 10% of the firms stock before the purchase and this comprises your total wealth. how will you create "home made dividend?

2. suppose your 10,000 shares were originally purchased for $3 per shares. the dividend income is subject to a 30% icnome tax rate, and capital gains are taxed at half the regular tax rate of 40%. how much more or less will you pay in creating home-made dividend if the firm were to use its 35000 excess cash to buy back its stocks?

3. suppose the firm uses its excess cash to buy back its stock. how many shares will you sell to have an after-tax amount equal to the after-tax amount you would have had if the firm had paid its excess cash dividend?

4. you have bough a European put and sold a European call on a companys stock, with both options having the same exercise price of $30. this combined position is equal to

Alex, Inc. is financed 100% with equity. The firm has 100,000 shares of stock outstanding with a market price of $5 per share. Total earnings for the most recent year are $50,000. The firm has $25,000 excess cash. It is considering using this excess cash to pay it out as dividend or use it to repurchase $25,000 of its own stock. The firm has other assets worth $475,000 (at market value). For each of the questions that follow, assume no transaction costs, and no taxes except for questions 22 and 23