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5) Assume that management makes a surprise announcement that JRN will no longer pay dividends but will use the cash to repurchase stock instead.
5) Assume that management makes a surprise announcement that JRN will no longer pay dividends but will use the cash to repurchase stock instead. The price of a share of JRN's stock is now closest to: A) S20.oo B) S25.oo C) S18.oo D) S24.oo Answer: B Explanation: Diff: 2 Skill: Analytical B) In a perfect capital market the dividend / repurchase decision does not impact firm value. Since the tax rate for repurchases is zero, the stock price would be the same as if the firm paid out the dividend and the dividends were not taxed, so: Dividend 33.00 Price - $25.00 .12
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