Question: Easy Over Eggs Limited (EEL) has been paying a regular cash dividend of $1.50 per share each year for over a decade. They are paying

Easy Over Eggs Limited (EEL) has been paying a regular cash dividend of $1.50 per share each year
for over a decade. They are paying out all their earnings as dividends and they are not expected to
grow. There are 6,000,000 shares outstanding selling for $28 per share. EEL have sufficient cash
on hand to pay the next annual dividend. Suppose that, staring in year 1, EEL decide to cut its cash
dividend to zero and announce that they will repurchase shares instead
a) What is the immediate stock price reaction? Ignore taxes, and assume that the repurchase
program conveys no information about operating profitability or business risk. (2 marks)
b) How many shares will EOEL purchase? (4 marks)

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