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 change after the stock repurchase.

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