Topic: Dividend

Part B:(5 Marks)

The current value of the GIGA corporation is $400 million. The existing capital structure of the company shows that the company is unlevered and has 10 million shares outstanding. Moreover, the balance sheet shows that the company has excess cash of $100 million. The company has used this excess cash for the shares repurchase. The announcement of share repurchase may have a positive or negative effect on the current value of the firm. It is expected that it may increase or decrease the current value of the firm by $200 million.

Required:

Calculate the price of GIGA's stock before the repurchase decision.(2 Marks)

What is the effect of an increase and decrease in the firm value on stock price after share repurchase? (3 Marks)