The stock of Lamatar Company will go ex-dividend tomorrow. The current market-value based balance sheet of the company is follows:

Assets Liabilities & Equity

Cash $ 245,000 Equity $ 1,035,000

Fixed Assets $ 790,000

$ 1,035,000 $ 1,035,000

Other information:

Number of outstanding shares: 23000

Cash dividend (per share): $4.50

Answer the following questions:

i. What price is Lamatar stock selling for today?

ii. What price will it sell for tomorrow? Ignore taxes.

Now suppose that Lamatar announces its intention to repurchase 10% worth of stock instead of paying out cash divided.

iii. Prepare the pro-forma balance sheet (as shown above) after the stock repurchase?

iv. What price will it sell for tomorrow (after stock repurchase)?

Now suppose that Lamatar again changes its mind and decides to issue a 10% stock dividend instead of either cash dividend or share repurchse plan.

v. Prepare the pro-forma balance sheet (as shown above) after the stock dividend payment?

vi. What will be the price per share after the stock dividend?

vii. If you currently own 10% shares of Lamatar Company, what will be the changes in the value of your investment in Lamatar stocks?

viii. Based on your answers to (i) to (vii) above, compare the effect of different divided payout policies on stock price, market value of the firm, the shareholder's wealth.