Your all-equity firm is expected to generate a free cash flow of $50M per year in perpetuity starting next year, and also has a single free cash flow of $30M today. Assume that all free cash flows go to stockholders. An analysis of comparable firms informs you that the beta of your firm equals 1.4. Assume a risk-free rate of 3 percent and a market risk premium of 5 percent. Also assume that your firm has 10M shares outstanding.

1. Suppose that the firm will pay out a total dividend of $30M today. What is the cum-dividend and ex-dividend price per share?

2. Suppose instead that the firm will repurchase $30M worth of shares today at the cum-dividend price. How many shares does the firm repurchase? Calculate the share price after the firm repurchases these shares.

3. Suppose instead that the firm will pay out a special dividend of $70M today. To pay this dividend, the firm will use the $30M in cash it has on hand and issue $40M worth of shares at the cumdividend price. Answer the following questions:

1. How many shares does the firm have to issue to receive $40M in cash?
2. What percentage of the firm is sold in exchange for this $40M in cash?
3. What is the price per share for this firm before the $70M special dividend is paid out but after the $40M in cash is raised through the new equity issuance?
4. What is the ex-dividend price per share?