Activist investors are pressuring Towerview Associates to distribute some of its cash holdings to shareholders. The activist argues that Towerview$$s required cash is two times annual SG&A expenses, and anything above that represents excess cash that should be distributed to shareholders. Towerview has $20$ million shares outstanding, and its current stock price is $$6$ A simplified balance sheet and income statement is shown below.

BALANCE SHEET

Cash $50$ Debt $15$

Other short$-$term assets $20$ Equity $120$

Other long$-$term assets $65$

Total Assets $135$ Total Liabilities and Shareholders Equity $135$

INCOME STATEMENT

Revenues $120$

COGS $80$

Gross Profit $40$

SG&A Expenses $10$

R&D Expenses $3$

Total Operating Expenses $13$

Operating Income $27$

Interest Expense $2$

Income Tax Expense $10$

Net Income $15$

$$

a$.$ Please make a revised balance sheet, which depicts the state of the firm following the payout of the excess cash.

b$.$ Suppose the firm does a repurchase, in which it distributes all the excess cash. How many shares would the firm repurchase?

c$.$ Suppose the firm makes a one$-$time special dividend, in which it pays out all the excess cash. How much would this dividend be$?$

d$.$ Calculate the firm$$s P$/$E ratio:

$1)$ Before the distribution of the excess cash

$2)$ In the scenario in which the excess cash is distributed via a repurchase $($as in part b$).$ Briefly discuss what drives the change $($or lack thereof$)$ relative to the P$/$E prior to distribution of excess cash.

$3)$ In the scenario in which the excess cash is distributed via a one$-$time dividend $($as in part c$).$ Briefly discuss what drives the change $($or lack thereof$)$ relative to the P$/$E prior to distribution of excess cash.