1. Explain what a dividend is and describe the different types of dividends and the dividend payment process.
2. Explain what a share repurchase is and how companies repurchase their shares.
3. You find that you are the only investor who owns a particular share who is subject to a 15 per cent tax rate on dividends (all other investors are subject to a 5 per cent tax rate on dividends). Is there greater value to you to hold on to the shares beyond the ex-dividend date or to sell the shares and repurchase the shares on or after the ex- dividend date? Assume that the shares are currently selling for 10.00 and the dividend will be 0.25 per share.
4. Saguaro SA currently has 30 000 shares outstanding. Each share has a market value of 20. If the firm pays 5 per share in dividends, what will the value of each share be worth after the dividend payment? Ignore taxes.
5. You purchased 1,000 shares of Zebulon Copper Co. five years ago at a price of 50 per share. Today Zebulon is considering repurchasing its shares through a fixed-price tender offer price of 70 per share. Zebulon is also considering paying a 70 cash dividend per share. If capital gains are taxed at a 15 per cent rate, then at what rate must dividends be taxed for you to be indifferent between the dividend and selling your shares back to Zebulon?
6. Discuss the benefits and costs associated with dividend payments and compare the relative advantages and disadvantages of dividends and share repurchases.
7. KMS Corporation has assets with a market value of $500 million, $50 million of which are cash. It has debt of $200 million, and 10 million shares outstanding. Assume perfect capital markets.

a. What is its current stock price?

b. If KMS distributes $50 million as a dividend, what will its share price be after the dividend is paid?

c. If instead, KMS distributes $50 million as a share repurchase, what will its share price be once the shares are repurchased?

d. What will its new market debt-equity ratio be after either transaction?

8.Raviv Industries has $100 million in cash that it can use for a share repurchase. Suppose instead Raviv invests the funds in an account paying 10% interest for one year.

a. If the corporate tax rate is 40%, how much additional cash will Raviv have at the end of the year net of corporate taxes?

b. If investors pay a 20% tax rate on capital gains, by how much will the value of their shares have increased, net of capital gains taxes?

c. If investors pay a 30% tax rate on interest income, how much would they have had if they invested the $100 million on their own?

d. Suppose Raviv retained the cash so that it would not need to raise new funds from outside investors for an expansion it has planned for next year. If it did raise new funds, it would have to pay issuance fees. How much does Raviv need to save in issuance fees to make retaining the cash beneficial for its investors? (Assume fees can be expensed for corporate tax purposes.)