1,2,4,6

Cash Distributions to Shareholders 1. ABC Corporation announced that it would pay a dividend to all shareholders of record as of Monday, April 5, 2010. It takes three business days after a purchase for the new owners of a share of stock to be registered. a. What was the date of the ex-dividend day? b. When was the last day an investor could have purchased ABC stock and still received the dividend payment? 2. RFC Corp. has announced a $1 dividend. If RFC's last price while trading cum- dividend is $50, what should its first ex-dividend price be (assuming perfect capital markets)? 3. ECB Co. has 1 million shares outstanding selling at $20 per share. It plans to repur- chase 100,000 shares at the market price. What will its market capitalization be after the repurchase? What will its stock price be? 4. KMS corporation has assets of $500 million, $50 million of which are cash. It has debt of $200 million. If KMS repurchases $20 million of its stock: a. What changes will occur on its balance sheet? b. What will its new leverage ratio be? 5. Suppose that KMS in Problem 4 decides to initiate a dividend instead, but it wants the present value of the payout to be the same $20 million. If its cost of equity capital is 10%, to what amount per year in perpetuity should it commit (assuming perfect capital markets)? Dividends Versus Share Repurchases in a Perfect Capital Market 6. EJH Company has a market capitalization of $1 billion and 20 million shares out- standing. It plans to distribute $ 100 million through an open market repurchase. Assuming perfect capital markets: a. What will the price per share of EJH be right before the repurchase? b. How many shares will be repurchased? c. What will the price per share of EJH be right after the repurchase