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Suppose firm A has a share price of 20€ and 110 million shares outstanding. It is considered a payout of 200 million in the form of either a cash dividend or a stock repurchase. What is the effect (if any) of each of there alternatives on:
- Firm marker capitalization,
- The number of shares outstanding,
- The stock price,
- Shareholders' total wealth?
The firm has no debt, and there are not taxes or other frictions.
Determine the net present value of the stream of profits, i.e., discounted profits in year 1, year 2, year 3 less the cost of the deal.
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