) Alpha is a firm which has no taxes on capital gains and dividends. The company is expected to generate earnings of $3 per share, per year, in perpetuity with the first earnings is next year. The company distributes all its annual earnings by annual dividend. The cost of capital of the company is 10%.

a) What is the stock price of Alpha?

b) Assume that management makes a surprise announcement that Peter will no longer pay dividends but will distribute earnings by repurchasing stocks instead. What is the postannouncement stock price? Given the current political uncertainty, Alpha plans to incorporate in the U.S. However, its shareholders will face a capital gains tax rate of 20% and a dividend tax rate of 40%. Suppose Peter decides to incorporate in the U.S.

c) What is the stock price of Alpha if the company distributes earnings by dividend?

d) What is the stock price of Alpha if the company distributes earnings by repurchasing stocks instead.