Problem 2. Formaggio Inc. has just announced its regular quarterly cash dividend of $1 per share. (a) When will the stock price fall to reflect this dividend payment - on record date, the ex-dividend date, or the payment date? (b) Assume that there are no taxes. By how much is the stock price likely to fall? (c) Assume that all investors pay tax of 30% on dividends and nothing on capital gains. What is the likely fall in the stock price? (d) Suppose that everything is the same as in part (c), except that security dealers pay tax on both dividends and capital gains. How would you expect your answer to (c) to change? Explain. (c) Assume no taxes and a stock price immediately after the dividend announcement of $100. a. If you own 100 shares, what is the value of your investment? How does the dividend payment affect your wealth? b. Now suppose that Formaggio cancels the dividend payment and announces that it will repurchase 1% of its stock at $100. Do you rejoice or yawn? Explain. Problem 2. Formaggio Inc. has just announced its regular quarterly cash dividend of $1 per share. (a) When will the stock price fall to reflect this dividend payment - on record date, the ex-dividend date, or the payment date? (b) Assume that there are no taxes. By how much is the stock price likely to fall? (c) Assume that all investors pay tax of 30% on dividends and nothing on capital gains. What is the likely fall in the stock price? (d) Suppose that everything is the same as in part (c), except that security dealers pay tax on both dividends and capital gains. How would you expect your answer to (c) to change? Explain. (c) Assume no taxes and a stock price immediately after the dividend announcement of $100. a. If you own 100 shares, what is the value of your investment? How does the dividend payment affect your wealth? b. Now suppose that Formaggio cancels the dividend payment and announces that it will repurchase 1% of its stock at $100. Do you rejoice or yawn? Explain