Question: Problem 16-16 Repurchases and the DCF model Hors dAge Cheeseworks has been paying a regular cash dividend of $4.00 per share each year for over

Problem 16-16 Repurchases and the DCF model Hors dAge Cheeseworks has been paying a regular cash dividend of $4.00 per share each year

Problem 16-16 Repurchases and the DCF model Hors dAge Cheeseworks has been paying a regular cash dividend of $4.00 per share each year for over a decade. The company is paying out all its earnings as dividends and is not expected to grow. There are 119,000 shares outstanding selling for $80 per share. The company has sufficient cash on hand to pay the next annual dividend. Suppose that, starting in year 1, Hors d'Age decides to cut its cash dividend to zero and announces that it 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. Immediate stock price reaction b. How many shares will Hors d'Age re-purchase? (Round your answer to the nearest whole number.) Number of shares repurchased c. Project and compare future stock prices for the old and new policies. (Do not round intermediate calculations. Round your old policy answers to the nearest whole number and your new policy answers to 2 decimal places.) Share Price Year Old Policy New Policy 1 2 3

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