- Fill in the six blanks in the table below. The base case is provided. The company is considering distributing its $150 in cash either in the form of a dividend or by buying back (and retiring) its stock. Assume that if it buys back its stock, it will pay $30/share.
|
Base |
Issue dividends |
Buyback shares |
|
|
Cash held by firm |
$150 |
$0 |
$0 |
|
Other assets |
$300 |
$300 |
$300 |
|
Total market value of stock |
$450 |
||
|
Shares |
15 |
||
|
Share price |
$30 |
||
|
Total cash to shareholders |
$0 |
Homework Answers
Solution
| Base | Issue Dividends | Buyback Shares | |
| Cash held by firm | $150 | $0 | $0 |
| Other assets | $300 | $300 | $300 |
| Total market value of stock | $450 | $450 | $300 |
| Shares | 15 | 15 | 10 |
| Share price | $30 | $30 | $30 |
| Total cash to shareholders | $0 | $150 | $0 |
Here,we assumed that the share price remains constant at $30 / unit even after the buyback is done.So,in that case the market capitalisation of the firm will reduce as the number of outstanding shares will reduce.
Total Market value of the stock is arrived at by multiplying the number of outstanding shares and the share price per unit
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This company is considering distributing its $150 in cash either
in the form of a dividend or by buying back (and retiring) its
stock. If it buys back its stock, it will pay $30/share.
Base
Issue dividends
Buyback shares
Cash held by firm
$150
$0
$0
Other assets
$300
$300
$300
Total market value of stock
$450
$450
$300
Shares
15
15
10
Share price
$30
$30
$30
Total cash to shareholders
$0
$150
$0
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