Reference no: EM133064680
Question - A) Consider an all-equity financed firm which has 2,000 outstanding shares. The firm's current share price is £50 and it will pay a dividend of £10 per share tomorrow. What are the ex-dividend share price, shareholder's value and firm's value after dividend payment?
a) share price £50, shareholder's value £50, firm's value £80,000
b) share price £40, shareholder's value £50, firm's value £80,000
c) share price £40, shareholder's value £40, firm's value £80,000
d) share price £40, shareholder's value £50, firm's value £100,000
B) What are the share price, shareholder's value and firm's value if, instead, the firm decides to use the cash it had originally earmarked for dividend payment for a share repurchase?
a) share price £50, shareholder's value £50, firm's value £80,000
b) share price £40, shareholder's value £50, firm's value £80,000
c) share price £40, shareholder's value £40, firm's value £80,000
d) share price £40, shareholder's value £50, firm's value £100,000