Question
Dividend Policy Deserts Corp. will issue dividend. The dividend will be $0.5 per share, and there are 20,000 shares of stock outstanding. The firm has
- Dividend Policy Deserts Corp. will issue dividend. The dividend will be $0.5 per share, and there are 20,000 shares of stock outstanding. The firm has $10,000 excess cash, $900,000 fixed assets and 1,000,000 equity.
a. What is Deserts ex-dividend price?
b. Suppose that instead of paying a dividend, Deserts Corp announces that it will repurchase stock with a market value of $10,000. What happens to the stock price when the repurchase is announced?
c. Deserts Corp. has regularly paid a quarterly dividend of $.50 per share on its 20,000 outstanding shares. Now suppose that Deserts announces that instead of paying this dividend, it plans to repurchase $10,000 worth of stock instead. What effect will the repurchase have on an investor who currently holds 100 shares and sells 1 of those shares back to the company in the repurchase?
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