MODULE 4 (DIVIDEND POLICY) 1. What options does a firm have to spend its free cash...

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MODULE 4 (DIVIDEND POLICY) 1. What options does a firm have to spend its free cash flow (after it has satisfied all interest obligations)? 2. ABC Corporation announced that it will pay a dividend to all shareholders of record as of Monday, April 2, 2012. It takes three business days of a purchase for the new owners of a share of stock to be registered. a) When is the last day an investor can purchase ABC stock and still get the dividend payment? b) When is the ex-dividend day? 3. Describe the different mechanisms available to a firm to use to repurchase shares. 4. RFC Corp. has announced a $1 dividend. If RFC's price last price cum-dividend is $50, what should its first ex-dividend price be (assuming perfect capital markets)? 5. KMS Corporation has assets with a market value of $422 million, $36 million of which are cash. It has debt of $186 million and 18 million shares outstanding. Assume perfect capital markets. a) What is its current stock price? b) If KMS distributes $36 million as a dividend, what will its share price be after the dividend is paid? c) If instead, KMS distributes $36 million as a share repurchase, what will its share price be once the shares are repurchased? d) What will its new market debt-equity ratio be after either transaction? MODULE 4 (DIVIDEND POLICY) 1. What options does a firm have to spend its free cash flow (after it has satisfied all interest obligations)? 2. ABC Corporation announced that it will pay a dividend to all shareholders of record as of Monday, April 2, 2012. It takes three business days of a purchase for the new owners of a share of stock to be registered. a) When is the last day an investor can purchase ABC stock and still get the dividend payment? b) When is the ex-dividend day? 3. Describe the different mechanisms available to a firm to use to repurchase shares. 4. RFC Corp. has announced a $1 dividend. If RFC's price last price cum-dividend is $50, what should its first ex-dividend price be (assuming perfect capital markets)? 5. KMS Corporation has assets with a market value of $422 million, $36 million of which are cash. It has debt of $186 million and 18 million shares outstanding. Assume perfect capital markets. a) What is its current stock price? b) If KMS distributes $36 million as a dividend, what will its share price be after the dividend is paid? c) If instead, KMS distributes $36 million as a share repurchase, what will its share price be once the shares are repurchased? d) What will its new market debt-equity ratio be after either transaction?