1. The ABC Corporation announced that it will pay a dividend to all shareholders that register as of Monday, April 3, 2006. It takes three business days for owners of a share to register after purchase.

a. When is the last day an investor can buy ABC shares and get the dividend payment?

b. When is the ex-dividend day?

2. Natsam Corporation has $ 250 million of excess cash. The company is debt free and owns 500 million outstanding shares whose current market price is $ 15 each. Natsam's board decided to pay that cash as a dividend in a single installment.

a. What is the ex-dividend price of a stock, in a perfect capital market?

b. If instead the board decided to use the cash to make a one-time share buyback, in a perfect capital market, what is the price of the share after the buyback is made?

c. In a perfect capital market, what is the best policy (in parts a or b) for the company's investors?

3. Imagine you work at Oracle Corporation and part of your compensation is in the form of stock options. The value of the stock option is equal to the difference between the company's share price and an exercise price of $ 10 for each, at the time you exercise the option. As an option holder, would you prefer Oracle to use dividends, or share buybacks, to pay cash to shareholders? Explain your answer.