Wolverine Airlines has been paying a regular cash dividend of $4 per share each year for over a decade. The firm is paying out all of its earnings as dividends and its dividends are not expected to grow in the future. There are 100,000 shares outstanding and these shares currently are selling for $80 per share. This year's dividend (the year 0 dividend) has just been paid. Suppose Wolverine decides to cut its dividend to zero and uses its earnings each year to repurchase shares instead. There are no taxes.

(a) What would happen to the stock price at the time this change in policy was announced. Assume that the announcement does not convey any information to the market concerning future earnings.

(b) How many shares will Wolverine repurchase in year 1?

(c) Compare stock prices at year 0 (i.e., today) and year 1 under the old policy and the new policy.