Natsam Corporation has $ 268 million of excess cash. The firm has no debt and 525...

Natsam Corporation has $ 268 million of excess cash. The firm has no debt and 525 million shares outstanding with a current market price of $ 16 per share. Natsam's board has decided to pay out this cash as a one-time dividend. a. What is the ex-dividend price of a share in a perfect capital market? b. 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? c. In a perfect capital market, which policy in part (a) or (b) makes investors in the firm better off?

Expert Solution

jeff jeffy answered 5 months ago

Natsam Corporation has $264 million of excess cash. The firm has no debt and 472 million...

Natsam Corporation has $264 million of excess cash. The firm has no debt and 472 million shares outstanding with a current market price of $11 per share. Natsam's board has decided to pay out this cash as a one-time dividend. a. What is the ex-dividend price of a share in a perfect capital market? b. 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...

Natsam Corporation has $250 million of excess cash. The firm has no debt and 500 million...

Natsam Corporation has $250 million of excess cash. The firm has no debt and 500 million shares outstanding, with a current market price of $15 per share. Natsam’s board has decided to pay out this cash as a one-time dividend . a. What is the ex-dividend price of a share in a perfect capital market? b. 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...

Corporation A has $50 million in excess cash and no debt. The firm expects to generate...

Corporation A has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Corporation A's cost of capital is 10% and there are 10 million shares outstanding. Corporation A's board decided to use the entire $50 million to repurchase shares. Assume that you own 2,500 shares of Corporation A stock and that Corporation A uses...

(a) Kim Corp. has $50 million in excess cash and no debt. The firm expects to...

(a) Kim Corp. has $50 million in excess cash and no debt. The firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Kim Corp.’s cost of capital is 10% and there are 10 million shares outstanding. Kim Corp.'s board decided to use the entire $50 million to repurchase shares. Assume that you own 2,500 shares of Kim Corp. stock and that...

Stott Plc (Stott) has £150 million in excess cash and no debt. The firm expects to...

Stott Plc (Stott) has £150 million in excess cash and no debt. The firm expects to generate additional free cash flows of £105 million per year in subsequent years and will pay out these future free cash flows as regular dividends. Stott’s unlevered cost of capital is 6% and the company presently has 6 million shares outstanding. Stott's board is meeting to decide whether to pay out its £150 million in excess cash as a special dividend or to use...

Assume a Modigliani-Miller world. Genron Corporation has $20 million in excess cash and has no debt....

Assume a Modigliani-Miller world. Genron Corporation has $20 million in excess cash and has no debt. The firm expects to generate additional free cash flow of $48 million per year. It has 10 million shares outstanding. Genron decides to use the $20 million excess cash to repurchase shares on the open market. After the share repurchase, Genron plans to distribute its annual free cash flow as dividends. Genron’s cost of capital is 12%. Show that Genron’s share price does not...

AMC Corporation currently has an enterprise value of $450 million and $125 million in excess cash....

AMC Corporation currently has an enterprise value of $450 million and $125 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the share repurchase, news will come out that will change AMC's enterprise value to either $650 million or $250 million. a. What is AMC's share price prior to the share repurchase? b. What is AMC's share price after the repurchase if its enterprise value...

AMC Corporation currently has an enterprise value of $400 million and $100 million in excess cash....

AMC Corporation currently has an enterprise value of $400 million and $100 million in excess cash. The firm has 10 million shares outstanding and no debt. Suppose AMC uses its excess cash to repurchase shares. After the share repurchase, news will come out that will change AMC’s enterprise value to either $600 million or $200 million. 1. What is AMC’s share price prior to the share repurchase? 2. What is AMC’s share price after the repurchase if its enterprise value...

Overnight Publishing Company (OPC) has $2.8 million in excess cash. The firm plans to use this...

Overnight Publishing Company (OPC) has $2.8 million in excess cash. The firm plans to use this cash either to retire all of its outstanding debt or to repurchase equity. The firm’s debt is held by one institution that is willing to sell it back to OPC for $2.8 million. The institution will not charge OPC any transaction costs. Once OPC becomes an all-equity firm, it will remain unlevered forever. If OPC does not retire the debt, the company will use...

Overnight Publishing Company (OPC) has $4.3 million in excess cash. The firm plans to use this...

Overnight Publishing Company (OPC) has $4.3 million in excess cash. The firm plans to use this cash either to retire all of its outstanding debt or to repurchase equity. The firm’s debt is held by one institution that is willing to sell it back to OPC for $4.3 million. The institution will not charge OPC any transaction costs. Once OPC becomes an all-equity firm, it will remain unlevered forever. If OPC does not retire the debt, the company will use...

Question