A. Wyatt Oil has assets with a market value of $600 million, $70 million of which are excess cash. It has debt of $250 million, and 20 million shares outstanding. The board of directors of Wyatt Oil has just announced that it will use the excess cash to pay a special cash dividend. Suppose that all capital gains are taxed at a 15% rate, and that cash dividends are taxed at a 25% rate. Assume that there are no other market imperfections except taxes.

(i) If Wyatt Oils shareholders could not make any profits by selling their shares either just before or just after the ex-dividend date, what would be the share price just after the ex-dividend date?

(ii) An investor purchased 1,000 shares of Wyatt Oil several days before the dividend announcement date at the price of $12 per share. If the investor firmly predicts that the ex-dividend price is $15 per share and takes some transactions to benefit from the investors prediction, what is the net profit (that is, the net income after all taxes) of this investor?

(iii) Suppose that Wyatt Oil makes a surprise announcement that it would use the excess cash to conduct a share repurchase rather than pay a special cash dividend, what is the net tax savings for a shareholder who sells 1,000 shares of Wyatt Oil following this announcement?