Question
Wicked Bean Corporation has RM80 millions of excess cash. The firm has 20 million shares outstanding and no debt. Wicked Bean board has decided to
Wicked Bean Corporation has RM80 millions of excess cash. The firm has 20 million shares outstanding and no debt. Wicked Bean board has decided to pay out this cash as a one-time dividend assuming unlevered cost of capital of 16 percent. The firm expect to generate additional free cash flows of RM96 million per year in subsequent year. Assuming perfect capital market:
- Compute the cum-dividend price of the share.
- Find the ex-dividend price of the share.
- If the board instead decided to use the cash to do a one time share repurchase, calculate the price of the share once repurchase is complete.
- Based on Modigliani and Miller, identify which policy, paying dividend or share repurchase makes investors in the firm better off?
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Valuation, Measuring And Managing The Value Of Companies
Authors: Tim Koller, Marc Goedhart, David Wessels
7th Edition
1119611865, 9781119611868
