3 02:29:29 The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $1 per share, and there are 50,000 shares of stock outstanding. The market-value balance sheet for Payout is shown below. Assets Liabilities and Equity Cash Fixed assets $300,000 950,000 Equity $1,250,000 So far, price of the share today is $25 per share and it will sell at $24 per share for tomorrow. Now suppose that Payout announces its intention to repurchase $50,000 worth of stock instead of paying out the dividend. a. What effect will the repurchase have on an investor who currently holds 50 shares and sells 2 of those shares back to the company in the repurchase? Total value of the position b. What effect will the initial cash dividend payment have on the same investor? Total value of the position $

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
3
02:29:29
The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $1 per share, and there are 50,000 shares of stock
outstanding. The market-value balance sheet for Payout is shown below.
Assets
Liabilities and Equity
Cash
Fixed assets
$300,000
950,000
Equity
$1,250,000
So far, price of the share today is $25 per share and it will sell at $24 per share for tomorrow.
Now suppose that Payout announces its intention to repurchase $50,000 worth of stock instead of paying out the dividend.
a. What effect will the repurchase have on an investor who currently holds 50 shares and sells 2 of those shares back to the company
in the repurchase?
Total value of the position
b. What effect will the initial cash dividend payment have on the same investor?
Total value of the position
$
Transcribed Image Text:3 02:29:29 The stock of Payout Corp. will go ex-dividend tomorrow. The dividend will be $1 per share, and there are 50,000 shares of stock outstanding. The market-value balance sheet for Payout is shown below. Assets Liabilities and Equity Cash Fixed assets $300,000 950,000 Equity $1,250,000 So far, price of the share today is $25 per share and it will sell at $24 per share for tomorrow. Now suppose that Payout announces its intention to repurchase $50,000 worth of stock instead of paying out the dividend. a. What effect will the repurchase have on an investor who currently holds 50 shares and sells 2 of those shares back to the company in the repurchase? Total value of the position b. What effect will the initial cash dividend payment have on the same investor? Total value of the position $
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education