Rational Demiconductor has the following market$-$value balance sheet:

Rational Demiconductor

Balance Sheet

$($Market Values, in $ millions$)$

Surplus cash $ $4$ $ $0\mathrm{.}0$ Debt

Fixed assets and net working capital $1317$ Equity market capitalization $(1$ million shares at $$17$ per share$)$

$ $17$ $ $17$

Assume that Rational wins a lawsuit and is paid $$1$ million in cash. Its market capitalization rises by that amount. It decides to pay out $$5$ per share instead of $$1$ per share.

What happens to Rational$$s stock price if the payout comes as a cash dividend?

What happens to Rational$$s stock price if the payout comes as a share repurchase?

Note: Round your intermediate calculations to the nearest whole number.Problem $15-11$ Payout policy in perfect capital markets

Rational Demiconductor has the following market$-$value balance sheet:

Rational Demiconductor

Balance Sheet

$($Market Values, in $ millions$)$

Surplus cash

$$4,$$$0\mathrm{.}0$ Debt

Fixed assets and net working capital

Equity market capitalization $(1$ million shares at $$17$

per share$)$

Assume that Rational wins a lawsuit and is paid $$1$ million in cash. Its market capitalization rises by that amount. It decides to pay out

$$5$ per share instead of $$1$ per share.

a$.$ What happens to Rational's stock price if the payout comes as a cash dividend?

b$.$ What happens to Rational's stock price if the payout comes as a share repurchase?

Note: Round your intermediate calculations to the nearest whole number.

a$.$ New stock price

b$.$ New stock price