The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $1 per share, and there are 20,000 shares of stock outstanding. The market-value balance sheet for Payout is shown below。

Assets		Liabilities and Equity
Cash	$100,000	Equity	$1,000,000
Fixed assets	900,000

Now suppose that Payout from problem 8 announces its intention to repurchase $20,000 worth of stock instead of paying out the dividend.

a.	What effect will the repurchase have on an investor who currently holds 100 shares and sells 2 of those shares back to the company in the repurchase?
b.	Compare the effects of the repurchase to the effects of the cash dividend that you worked out in problem

Answer rating: 100% (QA)

A current price of the stock 100000020000 50 wealth of sharholder with 100 shares 10050 5000 shareho... View the full answer