Question 5

XYZ Corp. currently has $10 million in excess cash that it plans on returning to its shareholders through a share repurchase. XYZ's current share price is $23.6 and it currently has 34.3 million shares outstanding. In addition, the market value of the company's debt is $17 million. Assuming perfect markets, what will XYZ's share price be after it uses the excess cash to repurchase shares? Round your answer to two decimals (don't include the $-symbol in your answer).

Question 6

XYZ Corp currently has a market capitalization of $2,500 million and 100 million shares outstanding. Additionally, the company has $500 million in outstanding debt and $150 million in excess cash. The managers of XYZ Corp are trying to decide whether they should payout the excess cash as a dividend or whether they should use it to conduct a share repurchase. Assuming perfect markets, which of the following statements about payout policy is true?

	I.	Shareholders will always prefer a repurchase over a dividend payment because paying a dividend will reduce the share price relative to todays price.
	II.	Shareholders will be indifferent between a dividend payment and a repurchase.
	III.	Shareholders will always prefer a dividend over a repurchase because they get an instant cash payment.
	IV.	Shareholders will always prefer a repurchase over a dividend payment because repurchasing shares will increase the share price relative to todays price.

Question 7

ABC has just announced that is is planning to pay a dividend of $3.1 per share. Before the announcement the share price of ABC was $40.9. Assume that the tax rate on capital gains is 27%, the tax rate on dividends is 9%. By how much will you expect the share price of ABC to change on the ex-date. Round your answers to two decimals (do not include the $-symbol in your answer). If you expect a positive change (share price will increase) enter a positive number. If you expect a negative change (share price will decline) enter a negative number.

Question 8

You are a consultant that has been hired to recommend a payout policy for UBT Corp. UBTs shareholders are almost buy and hold individual investors as well as one-year individual investors. No shareholder of UBT owns more than 20% of all outstanding shares. You have compiled a table with the current tax rates that different types of investors might face (see below). With the information provided, how would you recommend that UBT structure its payout policy? Assume that taxes are the only market imperfection. Select the best answer.

Tax Rates for Different Investor Types

Investor Type	Tax Rate on Dividends	Tax Rate on Capital Gains
Buy and hold individual investor	20%	0%
One-year individual investor	20%	20%
Pension fund	0%	0%
Corporation with less than 20% ownership	10.5%	21%

	I.	The firm should only repurchase shares.
	II.	The firm should only use dividends.
	III.	How the firm structures its payout policy is irrelevant because investors are indifferent between dividends and repurchases.
	IV.	The firm should pay dividends and repurchase shares in equal amounts.