Natsam Corporation has ($250) million of excess cash. The firm has no debt and 350 million shares
Question:
Natsam Corporation has \($250\) million of excess cash. The firm has no debt and 350 million shares outstanding, with a current market price of \($20\) 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 ?
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