Company A is currently all$-$equity financed with $100$ million shares. The EBIT will be $30$ million in year

$1$ and growing at $3\%$ per year forever. The company always has a $40\%$ corporate tax. The investors

discount cash flows from similar projects at $18\%$ per year.

Now, the company takes a $50-$million loan to make distributions to the shareholders. The interest rate

on the loan is $5\%.$ There will be no principal repayments made until the loan is paid back in full in year

$5.$ Due to financial distress, $30\%$ of Company A$$s EBITs will be lost while it carries the $50-$million debt.

Capital gain tax is zero and dividend tax is $25\%.$

a$.$ If Company A announces that it will use the $50$ million to repurchase shares, what will be the price

right after the share repurchase? What is the price right after the announcement? $(5$ pts$)$

b$.$ If Company A announces that it will use the $50$ million to make a one$-$time dividend payout, what will

be the price right after the dividend payout? What is the price right after the announcement?