Suppose that all capital gains are taxed at a

27% rate, and that the dividend tax rate is

34%. Arbuckle Corp. is currently trading for $42

, and is about to pay a $5

special dividend.

Absent any other trading frictions ornews, what will its share price be just after the dividend ispaid?

Suppose Arbuckle made a surprise announcement that it would do a share repurchase rather than pay a special dividend.

b. What net tax savings per share for an investor would result from thisdecision?

c. What would happen toArbuckle's stock price upon the announcement of thischange?