Consider a firm will pay a dividend of $2 per share forever (0% dividend growth). Investors pay a 20% tax on dividends but no capital gains tax. The firms return of equity is 12%.

(a) What is the price of the firms stock? (5 points)

(b) If the firm switches from paying dividends to using the same amount of cash to repurchase shares, what is the price of the firms stock immediately after this announcement? (5 points)