Question
A shareholder with 100 shares in Jackpot Gaming Ltd is disappointed with company plans to repurchase $5 million in shares rather than pay an imminent
A shareholder with 100 shares in Jackpot Gaming Ltd is disappointed with company plans to repurchase $5 million in shares rather than pay an imminent cash flow equivalent $5 share in dividends. If the current share price is $25 and there are no taxes how could the shareholder replicate the cash flow and portfolio valuation that they would have realised had the company instead paid the dividend?
a) By borrowing $500 and buying 20 shares
b) By borrowing $500 and buying 25 shares
c) By selling 20 shares
d) By selling 25 shares
e) It is not possible to replicate the position
Answer is c. But I don't know why?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started