Suppose that a company has had an extraordinarily profitable year, and it announces that it

will use most of its net cash inflow to buy back shares of its stock in the market. Would you

expect the price of its stock to rise or fall when the announcement is made? Explain.

Consider the current balance sheet of the Ostende Oar Company, which has $2,000,000$ shares

outstanding at a price per share of $20.$ Derive the new balance sheet after the payment of a

$25\%$ stock dividend and compute the new share price.

Divido Corporation is an all$-$equity financed firm with a total market value of $$100$ million.

The company holds $$10$ million in cash$-$equivalents and has $$90$ million in other assets.

There are $1,000,000$ shares of Divido common stock outstanding, each with a market price of

$$100.$ What would be the impact on Divido's stock price and on the wealth of its

shareholders of the payment of a cash dividend of $$10$ per share? What if the company

instead repurchased $100,000$ shares?

Continuing the previous problem, analyze the impact on Divido's stock price and on the

wealth of its shareholders of the company:

a$.$ paying a $10\%$ stock dividend.

b$.$ making a $2-$for$-1$ stock split.