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Solved by a verified expert :Here are key financial data for House of Herring, Inc.:
Earnings per share for 2018 $6.00
Number of shares outstanding 41 million
Target payout ratio 40 %
Planned dividend per share $2.40
Stock price, year-end 2018 $ 125
House of Herring plans to pay the entire dividend early in January 2019. All corporate and personal taxes were repealed in 2017.
a. Other things equal, what will be House of Herring?s stock price after the planned dividend payout? (Round your answer to 2 decimal places.)
Stock price $
b-1. Suppose the company cancels the dividend and announces that it will use the money saved to repurchase shares. Will there be a change in the stock price on the announcement date?
b-2. Assume that investors learn nothing about the company?s prospects from the announcement. How many shares will the company need to repurchase? (Do not round intermediate calculations. Enter your answer in whole numbers not in millions.)
Number of shares
Suppose that, instead of canceling the dividend, the company increases dividends to $6.00 per share and then issues new shares to recoup the extra cash paid out as dividends. Again, assume investors learn nothing from the announcement about House of Herring?s prospects.
c-1. What happens to the with-dividend share price?
With-dividend share price $
c-2. What happens to the ex-dividend share price? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Ex-dividend share price $
c-3. How many shares will need to be issued? (Do not round intermediate calculations. Enter your answer in whole numbers not in millions. Round your answer to the nearest whole number.)
Number of shares