Question
2. DB, Inc. is publicly traded with a stock price of $50 per share and 200,000,000 shares outstanding. It also expects to have total net
2. DB, Inc. is publicly traded with a stock price of $50 per share and 200,000,000 shares outstanding. It also expects to have total net earnings of $400,000,000 next year. DB has $200 million in surplus cash that it wants to pay to shareholders. One option is to pay a special dividend. The other option is to repurchase stock with the cash. Evaluate the two alternatives below (ignoring any information effects):
a. What is the price of the companys stock
i. it pays a special dividend with all $200 million
ii. it repurchases $200 million on the open market
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