Homework Answers
a-1)
Total value of the company before the announcement = Number of
shares outstanding * Stock price
= 5,030 * $143 = $719,290
a-2)
Total value of the company after the announcement = Number of
shares outstanding * Stock price
= 5,030 * $143 = $719,290
a-3)
Value of one share = Total value of company / Number of
shares
= $719,290/5,030
= $143
b)
Total cash available next year = Expected dividend next year *
Number of shares
= $23 * 5,030
= $115,690
Dividend to be distributed after announcement = $115,690 / 2 =
$57,845.
Cash to be used to repurchase shares = $115,690 / 2 = $57,845.
Number of shares repurchased = Total cash to repurchase / share
price
= $57,845 / 143
= 405
Remaining shares = Total shares - shares repurchased
= 5,030 - 405
= 4,625
Expected dividend per share next year after announcement = Total
dividend after announcement / Total remaining shares
= $57,845 / 4,625
= $12.51
Dividend per share in year 1 = $12.51
Dividend per share in year 2 = $12.51 * (1 + 4%) = $13.01
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