Question $5$

With appropriate examples differentiate between Chapter $7$ and Chapter $11$ Bankrupty

II$.$ Explain under which conditions an increase in the dividend payment can be interpreted as a signal of the following:

a$.$ Good news

b$.$ Bad news

III. Why is an announcement of a share repurchase considered a positive signal?

IV$.$ Suppose that all capital gains are taxed at a $26\%$ rate, and that the dividend tax rate is $34\%.$ Arbuckle Corp. is currently trading for $$37$ and is about to pay a $$5$ special dividend.

a$.$ Absent any other trading frictions or news, what will its share price be just after the dividend is paid?

Suppose Arbuckle made a surprise announcement that it would do a share repurchase rather than pay a special dividend.

b$.$ What net tax savings per share for an investor would result from this decision?

c$.$ What would happen to Arbuckle's stock price upon the announcement of this change?

V$.$ EJH Company has a market capitalization of $$1\mathrm{.}6$ billion and $25$ million shares outstanding. It plans to distribute $$120$ million through an open market repurchase. Assuming perfect capital markets:

a$.$ What will the price per share of EJH beright before the repurchase?

b$.$ How many shares will be repurchased?

c$.$ What will the price per share of EJH be right after the repurchase