21. Dividends vs. repurchases Here are key financial data for House of Herring, Inc.: House of Herring plans to pay the entire dividend early in January 2019. All corporate and personal taxes were repealed in 2017. Earnings per share for 2018 Number of shares outstanding Target payout ratio Planned dividend per share Stock price, year-end 2018 $5.50 40 million 50% $2.75 $130 a. b. Other things equal, what will be House of Herring's stock price after the planned dividend payout? Suppose the company cancels the dividend and announces that it will use the money saved to repurchase shares. What happens to the stock price on the announcement date? Assume that investors learn nothing about the company's prospects from the announcement. How many shares will the company need to repurchase? Suppose that. instead of canceling the dividend the company increases Year Year O 1 2 3 Cash Flow ($ million -15 9 11 12 The accounting depreciation is $8 million per year and the cost of capit annual effective rate of 12% p.a.. a) What is the present value of Tompa at the end years 1, 2 and 3? (3 - What is the economic depreciation in each year? (2 mark) What is the economic income in each year? (2 mark) What is the economic rate of return in each year? (2 mark) T = = = = =