Natsam Corporation has $285 million of excess cash. The firm has no debt and 549 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.
1. What is the ex-dividend price of a share in a perfect capital market?
2. If the board instead decided to use the cash to do a one-time share repurchase, in a perfect capital market, 3. what is the price of the shares once the repurchase is complete?
3. In a perfect capital market, which policy in part (a) or (b) makes investors in the firm better off?
Answers: 2
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