1. Because your client is unlikely to sell all 1 million shares today, at the time of dividend/repurchase, you decide to consider two longer holding periods: Assume that under both plans the client sells all remaining shares of stock 5 years later, or the client sells 10 years later. Assume that the stock will return 10% per year going forward. Also assume that Amazon will pay no other dividends over the next 10 years.

1. What would the stock price be after 5 years or 10 years if a dividend is paid now?

2. What would the stock price be after 5 years or 10 years if Amazon repurchases shares now?

3. Calculate the total after-tax cash flows at both points in time (when the dividend payment or the share repurchase takes place, and when the rest of the shares are sold) for your client if the remaining shares are sold in 5 years under both initiatives. Compute the difference between the cash flows under both initiatives at each point in time. Repeat assuming the shares are sold in 10 year

2. Repeat Question 7 assuming the stock will return 20% per year going forward. What do you notice about the difference in the cash flows under the two initiatives when the return is 20% and 10%?
3. Calculate the NPV of the difference in the cash flows under both holding period assumptions for a range of discount rates. Based on your answer to Question 8, what is the correct discount rate to use?

This is what I havea. Current price and number of shares outstanding:

Shares outstanding 5.35Billion.

$21.22(as of Dec. 3, 2013)

b. See attached excel

2. Number of shares repurchased

a. The total cash and cash equivalent as of July 27, 2013 is $7,925,000,000

total free cash flow: 7,925,000,000*.50=3962500000

Number of shares that can be repurchased is calculated:

3962500000/ $21.22=186,734,000.21

c. Dividend per share that will be given:

Dividend per share=total free cash flow/total number of shares outstanding

3962500000/ 5.35bil=$7.41 per share (dividend)

3. Record the closing adjusted price/rate:

13.16

4. Total cash received with repurchase and dividend before and after taxes:

		before tax	after tax
cost of purchase		13.16	13.16
current market price		21.22	21.22
# of shares		1mil	1mil
total capital gain		8.06mil	8.06mil
tax on capital @15%		0	1,209,000
Total gain after tax		8.06mil	6,851,000

** SO, when Cisco decides to repurchase its shares, the shareholders will have to pay a tax of $1,209,000 and the gains would be in the hands of shareholders would be $6,851,000.

5. Assuming my client holds 1 million shares:

a. Calculation of ex-dividend price; ex-dividend price= c. dividend-dividend

21.22-7.41=$13.81

Calculation of total gain; $13.81*1mil(shares held by client)=$1,381,000

1381000*15%=2,071,500

1381000-2071500=$11,738,500( total gain after tax)

Calculation of total dividend share;

# of shares 1mil

dividend per share 7.41

=7.41mil

7.41mil*15%=1,111,500 ( tax on dividend income)

total income after tax= 7.41mil-1111500=$6,298,500

Calculation of total Income;

Total capital gain, $11,738,500

Total dividend Income, $6,298,000

11738500+6298000=$18,037,000 is the total income