Natsam Corporation has $150 million of excess cash. The firm has no debt and 350 million shares

Question:

Natsam Corporation has $150 million of excess cash. The firm has no debt and 350 million shares outstanding with a current market price of $11 per share. Natsam’s board has decided to pay out this cash as a one-time dividend.

a. What is the ex-dividend price of a share in a perfect capital market?

b. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market what is the price of the shares once the repurchase is complete?

c. In a perfect capital market, which policy, in part (a) or (b), makes investors in the firm better off?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Corporate Finance The Core

ISBN: 9781292158334

4th Global Edition

Authors: Jonathan Berk, Peter DeMarzo

Question Posted: