Question
Rational Demiconductor has the following market-value balance sheet: Rational Demiconductor Balance Sheet (Market Values, in $ millions) Surplus cash $ 1.0 $ 0 Debt Fixed
Rational Demiconductor has the following market-value balance sheet:
| Rational Demiconductor | |||
| Balance Sheet | |||
| (Market Values, in $ millions) | |||
| Surplus cash | $ 1.0 | $ 0 | Debt |
|---|---|---|---|
| Fixed assets and net working capital | 10.0 | 11.0 | Equity market capitalization (1 million shares at $11 per share) |
| $ 11.0 | $ 11.0 | ||
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 $2 per share instead of $1 per share.
a) What happens to Rationals stock price if the payout comes as a cash dividend?
b) What happens to Rationals stock price if the payout comes as a share repurchase?
Note: Round your intermediate calculations to the nearest whole number.
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Financial Management for Public, Health and Not-for-Profit Organizations
Authors: Steven A. Finkler, Daniel L. Smith, Thad D. Calabrese, Robert M. Purtell
5th edition
1506326846, 9781506326863, 1506326862, 978-1506326849
