QUESTION 4 Payout policy ( 15 POINTS)

1. Assen Inc. is making good profits, even though growth is slowing down a bit. So far the company has not paid out cash to its shareholders, however the CFO wants to start paying dividend or to start a share repurchase program. What is the initial question and what should the CFO consider in order to decide on a possible pay out? Explain briefly. (7 points)
2. The company has paid a constant cash dividend of 7$ on an annual basis for the last decade. For the dividend payment it used all its earnings. The business outlook is stable with no growth. Currently there are 250.000 outstanding shares at 50$ per share. The company earned again just about the right amount to pay its dividend. The CFO decides to switch instantly from cash dividends to repurchases for this year (T₀). Project and compare the stock price for the new policy for next year (T₁) and do the other necessary calculations to fill out the following table. (8 points)

Old Policy New Policy Shares Repurchased Shares oustanding Share Price Share Price To 250000 50 50 T1 50