Question
Rational Demiconductor has the following market-value balance sheet: Rational Demiconductor Balance Sheet (Market Values, $ millions) Surplus cash $ 2 $ 0 Debt Fixed assets
Rational Demiconductor has the following market-value balance sheet:
Rational Demiconductor Balance Sheet (Market Values, $ millions) | ||||||
Surplus cash | $ | 2 | $ | 0 | Debt | |
Fixed assets and net working capital | 11 | 13 | Equity market capitalization (1 million shares at $13 per share) | |||
$ | 13 | $ | 13 | |||
Assume that Rational wins a lawsuit and is paid $2 million in cash. Its market capitalization rises by that amount. It decides to pay out $4 per share instead of $1 per share.
a. What happens to Rationals stock price if the payout comes as a cash dividend? (Round your answer to the nearest whole number.)
New stock price $
b. What happens to Rationals stock price if the payout comes as a share repurchase? (Round your answer to the nearest whole number.)
New stock price $
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