Hi! i was confused about (c) it said the company would increase the dividend to $5.5/per share by issung shares to raise money. i do not understand why the number of shares repurchsed = repurchase amount/ex-dividend price. why denominator is ex-dividend price? i think the company should issued shares to raise before the ex-dividend date.

21. Dividends vs. repurchases Here are key financial data for House of Herring, Inc.: House of Herring plans to pay the entire dividend early in January 2019. All corporate and personal taxes were repealed in 2017. Earnings per share for 2018 $5.50 Number of shares outstanding 40 million Target payout ratio 50% Planned dividend per share $2.75 Stock price, year-end 2018 $130 a. Other things equal, what will be House of Herring's stock price after the planned dividend payout? After ex-dividend date, The stock price= 130-2.75=127.25 b. Suppose the company cancels the dividend and announces that it will use the money saved to repurchase 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? I need from a will know that there is an information asymmetry between the managers and shareholders, IT Waxing IT Full 1 2 10 ( (E(HE ( ) investor think the company's shares are worth more than the market price when the manager make stock repurchase. The stock price will constant at $30. (2) hares r 110m/130=846153 85c. Suppose that, instead of canceling the dividend, the companyr increases dividends to $5.50 per share and then issues new shares to recoup the extra cash paid out as dividends. What happens to the with- and ex-dividend share prices? How many shares will need to be issued? Again, assume investors learn nothing from the announcement about House of Herring's prospects. The with-dividend share price will constant at $130 The ex-dividend share price= 130-5.50=$124.5 Shares repurchases! = repurclvmse amount I'mdividend par-iceJS'JL'i'2:k If] fjl'ff 40m*2.?5=1 1 Om ill-{1% = (5.52.75) *40m!124.5|