question 3

Problem 18-9 Repurchases (LO2) The stock of Payout Corp. Will go ex-dividend tomorrow. The dividend will be 51 per share, and there are 10,000 shares of stock outstanding. The market-value balance sheet for Payout is shown below Assets Liabilities and Equity Cash $100,000 Equity $1,000,000 Fixed assets 900,000 So far, price of the share today is $100 per share and it will sell at $99 per share for tomorrow. Now suppose that Payout announces its intention to repurchase $10,000 worth of stock instead of paying out the dividend. (Round your answers to the nearest cent.) a. What effect will the repurchase have on an investor who currently holds 200 shares and sells 2 of those shares back to the company in the repurchase? Total value of the position b. What effect wil the initial cash dividend payment have on the same investor? Total value of the position References