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
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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 $
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