20. Dividends vs. repurchases House of Haddock has 5,000 shares outstanding and the stock price is $140. The company is expected to pay a dividend of $20 per share next year and thereafter the dividend is expected to grow indefinitely by 5% a year. The President, George Mullet, now makes a surprise announcement: He says that the company will henceforth dis- tribute half the cash in the form of dividends and the remainder will be used to repurchase stock. The repurchased stock will not be entitled to the dividend. I have provided a detailed numerical solution to this in an excel sheet. The main idea in this question is the value of a firm remains the same irrespective of the payout policy. In the case of the firm paying only dividends per share, and the dividends growing at g and cost of capital r. The price per share is Po= d//r-g). == 20/(0.193-0.05) == 140 If half the amount is paid as dividends and the remaining half as repurchases, the price per share is po= d/(r-g) in this case as well. (10.64/(0.193-0.117)) == 140 Show that the price (by using values of dq, r, and g) is the same for the following cases: A. 25 percent of the amount in repurchases and rest on dividends B. 75 percent of the amount in repurchases and rest on dividends Note: plugin these values in the excel sheet and report them or you can do it otherwise. 20. Dividends vs. repurchases House of Haddock has 5,000 shares outstanding and the stock price is $140. The company is expected to pay a dividend of $20 per share next year and thereafter the dividend is expected to grow indefinitely by 5% a year. The President, George Mullet, now makes a surprise announcement: He says that the company will henceforth dis- tribute half the cash in the form of dividends and the remainder will be used to repurchase stock. The repurchased stock will not be entitled to the dividend. I have provided a detailed numerical solution to this in an excel sheet. The main idea in this question is the value of a firm remains the same irrespective of the payout policy. In the case of the firm paying only dividends per share, and the dividends growing at g and cost of capital r. The price per share is Po= d//r-g). == 20/(0.193-0.05) == 140 If half the amount is paid as dividends and the remaining half as repurchases, the price per share is po= d/(r-g) in this case as well. (10.64/(0.193-0.117)) == 140 Show that the price (by using values of dq, r, and g) is the same for the following cases: A. 25 percent of the amount in repurchases and rest on dividends B. 75 percent of the amount in repurchases and rest on dividends Note: plugin these values in the excel sheet and report them or you can do it otherwise