Here are key financial data for House of Herring, Inc:

Earnings per share for 2015 $5.50

Number of shares outstanding 40 million

Target payout ratio 50%

Planned dividend per share $2.75

Stock price, year-end 2015 $130

House of Herring plans to pay the entire dividend early in January 2019. All corporate and personal taxes were repeated in 2017.

a.Other things equal, what will be House of Herring's stock price after the planned dividend payout?

b.Suppose the company cancels the dividend and announces that it will use the money saved to repurchases shares. What happens to the stock price on the announcement date? Assume that investors learn nothing about the company's prospects from the announcement. How many shares will the company need to repurchase?