Firm DMZ has the following balance sheet information. The firm is considering how to pay out the excess cash to the shareholders as a special dividend. DMZ has 8.5m shares outstanding in the market. In particular, because of tax benefit, shareholders request share repurchase instead of cash dividend.
Excess Cash $15m
Machine $100m
Market Value of Debt $30m
Market Value of Equity $85m
In the case of share repurchase from the open market, how many shares would be repurchased?
1. 1.5m
2. 1.0m
3. 3.0m
4. 8.5m
5. 5.5m
6. 10m
What would be the new share price right after the payout?
Select one:
1. $13.63
2. $11.00
3. $9.81
4. $8.50
5. $10.00
6. $15.25
If, instead, DMZ makes a tender offer in which they pay a significant premium to buy back at 10% of the current market price, how many shares would be repurchased?
Select one:
1.0.76m
2.1.12m
3.1.50m
4.0.93m
What would be the new share price right after the completion of the transaction (share repurchase) in this case?
Select ono:
1. $11.00
2. $12.38
3. $8.25
4. $9.81
5. $12.00
6. $13.17
As a stock holder, which way would you prefer, and why?
