Question $1$

A$.$ What options does a firm have to spend its free cash flow $($after it has satisfied all interest obligations$)?$

B$.$ 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?

C$.$ Describe the different mechanisms available to a firm to use to repurchase shares.

D$.$ RFC Corp. has announced a $$1$ dividend. If RFCs price last price cum$-$dividend is $$50,$ what should its first ex$-$dividend price be $($assuming perfect capital markets$)?$

E$.$ 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?