Natsam Corporation has $300 million of excess cash. The firm has no debt and 600 million shares outstanding with a current market price of $19 per share. Suppose the board decided to do a one-time share repurchase, but you, as an investor, would have preferred to receive a dividend payment. How can you leave yourself in the same position as if the board had elected to make the dividend payment instead?

Natsam Corporation has $300 million of excess cash. The firm has no debt and 600 million shares outstanding with a current market price of $19 per share. Suppose the board decided to do a one-time share repurchase, but you, as an investor, would have preferred to receive a dividend payment. How can you leave yourself in the same position as if the board had elected to make the dividend payment instead?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter24: Bankruptcy, Reorganization, And Liquidation

Section: Chapter Questions

Problem 1P: Southwestern Wear Inc. has the following balance sheet: The trustees costs total 281,250, and the...

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Natsam Corporation has $250 million of excess cash. The firm has no debt and 600 million shares outstanding with a current market price of $17 per share. Natsam's board has decided to pay out this cash as a one-time dividend. What is the ex-dividend price of a share in a perfect capital market? (Round to the nearestcent.) If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market what is the price of the shares once the repurchase is complete? (Round to the nearestcent.) In a perfect capital market, which policy, in part (a) or (b), makes investors in the firm better off? (Round to the nearestcent.)
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