The balance sheet for Zeta Corporation is shown below in market value terms. There are 1.000 shares outstanding.

Market value balance sheet
Cash	200	Equity	4200
Non-current assets	11000	Liabilities	7000
Total	11200	Total	11200

1. The company declared a cash dividend of 0.80 per share. It goes ex-dividend tomorrow. Ignoring any tax effects, what is the cum-dividend price and the ex-dividend price? (5 points)

We have the following information:

Market Value of Equity= 4200 million

No of shares outstanding=1,000

Dividend= 0.8 per share

Therefore,

Cum-dividend price = Market Price before dividend is issued = 4200 million/1000 = 4.2 million

Ex-dividend price= Market Price after dividend is issued = 4.2-0.8 = 3.4million

2. What will the market value balance sheet look like after the dividends are paid? (5 points)

Market Value Balance Sheet Post Dividend

Cash 200 Equity 3400

Non-Current Assets 11000 Dividend Payable 800

Liabilities 7000

Total 11200 Total 11200

Once the dividend is actually paid, the same would be removed from the liabilities side and would also be adjusted on the assets side.

3. What if instead of cash dividend, the company has announced it is going to repurchase 800 million worth of equity. What effect will this transaction have on the equity of the firm? How many shares will be outstanding? (5 points)

A share buyback would reduce the capital by the number of shares repurchased, that is, 800 million, and this would also be deducted from the asset. The company would have to liquidate an asset or organize funds since there is not enough cash available to buy it back.

As a result of the buyback, the return on investment and return on equity will increase significantly. The capital stock of the company would be 3400-800 = 2.6 million

4. What will be the price per share be after the repurchase? (5 points)

After the repurchase, price per share will be

Number of shares to be repurchased= 800/4.2 = 191 shares

Remaining shares=809

Value of equity after buyback= 2600 million

Share price after buyback= 2600/809= 3.21 million

5. Are the two strategies equivalent? Why, or why not? (5 points)