16. Thomas Corp has assets of $100 million. $10 million of the assets are cash. It...

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16. Thomas Corp has assets of $100 million. $10 million of the assets are cash. It has debt of $50 million. It has 1 million shares outstanding. The Modigliani-Miller assumptions hold, so there are no taxes, agency costs, or other imperfections. a. What is the current share price? b. If Thomas pays a dividend of $10/share, what will be the share price after the dividend is paid? c. Did total shareholder wealth change because the dividend is paid? [yes/no] d. If Thomas instead repurchases $10 million worth of shares, what will its share price be after the repurchase? e. How many shares were repurchased? f. What is the new debt-equity ratio after either transaction? 16. Thomas Corp has assets of $100 million. $10 million of the assets are cash. It has debt of $50 million. It has 1 million shares outstanding. The Modigliani-Miller assumptions hold, so there are no taxes, agency costs, or other imperfections. a. What is the current share price? b. If Thomas pays a dividend of $10/share, what will be the share price after the dividend is paid? c. Did total shareholder wealth change because the dividend is paid? [yes/no] d. If Thomas instead repurchases $10 million worth of shares, what will its share price be after the repurchase? e. How many shares were repurchased? f. What is the new debt-equity ratio after either transaction?

Answer rating: 100% (QA)

a The current share price can be calculated by dividing the companys equity by the number of shares ... View the full answer