HNH Corporation has made a before-tax profit of $500 million. The firm has no debt and 100 million shares outstanding, with a current market price of $30 per share. HNHs board is currently deciding whether to pay out this profit to shareholders through a dividend or share repurchase.

(a) If the board chooses to pay a dividend, what is the ex-dividend price of the shares in a perfect capital market with no taxes? (2 marks)

(b) If the board instead chooses to repurchase shares, in a perfect capital market with no taxes, what is the price of the shares once the repurchase is complete? (1 mark)

(c) Suppose that the board decides to pay a dividend. Assume that HNH pays corporate taxes of 30% and the marginal tax rate for shareholders is 40%. What is the after-tax dividend and effective tax rate for shareholders: (i) In a classical tax system? (2 marks) (ii) In an imputation system (assuming that the dividend is 60% franked)? (3 marks) [Total for Question 4: 8 marks]