Hors dAge Cheeseworks has been paying a regular cash dividend of $11 per share each year for more than a decade. The company is paying out all its earnings as dividends and is not expected to grow. There are 86,000 shares outstanding selling for $94 per share. The company has sufficient cash on hand to pay the next annual dividend.

Suppose that, starting in year 1, Hors dAge decides to cut its cash dividend to zero and announces that it will repurchase shares instead.

a. Is there any immediate stock price reaction? Ignore taxes, and assume that the repurchase program conveys no information about operating profitability or business risk.

multiple choice

• Yes

• No

b. How many shares will Hors dAge purchase? (Enter your answer as a whole number.)

c. Project future stock prices for both the old and new policies for years 1, 2, and 3. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)