The balance sheet of the Universal Sour Candy Company is given in the table below.

ASSETS LIABILITIES

Cash $2000 Debt $5000

Equity 5000

Total Liabilities $10000

Inventory 2000

Property Plant and Equipment 6000

Total Assets $10000

Assume that all balance sheet items are expressed in terms of market value. The company has decided to pay a $2000 dividend to shareholders. There are four ways to perform this:

i.Pay a cash dividend

ii.Issue $2000 of new debt and equity in equal proportions ($1000 each) and use the proceeds to pay the dividend

iii.Issue $2000 of new equity and use the proceeds to pay the dividend

iv.Use the $2000 of cash to repurchase equity

What impact will each of the four policies above have on the following?

a.The systematic risk of the portfolio of assetsheld by the firm

b.The market value of original bondholders wealth

c.The market value ratio of debt to equity

d.The market value of the firm in a world without taxes