CASE 3 (25 points)

(5 points) (5 points) (5 points) (5 points) (5 points)

The balance sheet for Samoa Corporation is shown here in market value terms. There are 2,400 million shares outstanding.

Cash Non-current assetsTotal

315 Equity 10,256 Liabilities10,571 Total

4,022 6,549

Market value balance sheet ( mln)

10,571 a.The company declared a cash dividend of 0.61 per share. The equity goes ex-dividend tomorrow. Ignoring any tax effects, what are the shares selling for

today? What will they sell for tomorrow? What will the market value balance sheet look like after the dividends are paid? (10 points)

b.What if instead of cash dividend, the company has announced it is going to repurchase 1,000 million worth of equity. What effect will this transaction have on the equity of the firm? How many shares will be outstanding? What will the price per share be after the repurchase? (10 points)

c. Ignoring tax effects, explain how the share repurchase is effectively the same as a cash dividend. (5 points)