Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Analysis for Financial Management

Authors: Robert C. Higgins

12th edition

1259918963, 9781260140729 , 978-1259918964

More Books

Students also viewed these Finance questions

Question

Which pair represents isotopes? He

Answered: 1 week ago