The Link Resport & Spa Company has 75,000 shares of stock outstanding. The company is expected to have total earnings next year of $500,000. The company plans to reinvest $275,000 in projects earning an (equity) return of 15%, and to return the remainder of its earnings to shareholders in the form of dividends or stock repurchases. The first dividend or repurchse payments will be made exactly one year from today. In all future years, the market expects the company's reinvestment rate and the return on reinvested earnings to remain constant. The required return on equity is 12%.

What is the value of the firm today, if it

1.) uses the remaining $225,000 to pay dividends, and will continue this payout policy (as a percent of earnings) in future years?

2) uses 40% of its annual payout to repurchase stock, and uses the remainder to pay divdends (and will continue this policy in future years)?

Assume that the firm will use the remaining $225,000 to pay dividends (and will continue this payout policy in future years.) For each of the next three years (t=1, t=2, and t=3) identify:

1) the total divdend payment and the dividend per share

2) the stock price immediately after the dividend payment

3) the annual holding period earned by shareholders

Assume that the firm will use 40% of its annual payout to repurchase stock, and will use the remainder to pay dividends (and will continue this policy in future years). For each of the next three years (t=1, t=2, t=3), identify:

1) the number of shares repurchased, and the number of outstanding shares

2) the stock price immediately after the share repurchase and the dividend payment

3) the total dividend payment and the dividend per share

4) the annual holding period return earned by shareholders who

1 - do not sell ( and receive that year's dividend)

2 - sell their shares back to the company (and do not receive that year's dividend)