Hors d'Age Cheeseworks has been paying a regular cash dividend of $8.5 per share each year for more than a decade. The company is paying out all its earnings as dividends and is not expected to grow. There are 91,000 shares outstanding selling for $89 per share. The company has sufficient cash on hand to pay the next annual dividend. Suppose that, starting in year 1, Hors d'Age decides to cut its cash dividend to zero and announces that it will repurchase shares instead. a. Is there any immediate stock price reaction? Ignore taxes, and assume that the repurchase program conveys no information about operating profitability or business risk. b. How many shares will Hors d'Age purchase? Note: Enter your answer as a whole number. c. Project future stock prices for both the old and new policies for years 1, 2, and 3. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. a. Is there any immediate stock price reaction? b. Number of shares c. Price year 1 c. Price year 2 No

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Qd 40.

Hors d'Age Cheeseworks has been paying a regular cash dividend of $8.5 per share each year for more than a decade. The
company is paying out all its earnings as dividends and is not expected to grow. There are 91,000 shares outstanding selling for
$89 per share. The company has sufficient cash on hand to pay the next annual dividend.
Suppose that, starting in year 1, Hors d'Age decides to cut its cash dividend to zero and announces that it will repurchase shares
instead.
a. Is there any immediate stock price reaction? Ignore taxes, and assume that the repurchase program conveys no information
about operating profitability or business risk.
c.
b. How many shares will Hors d'Age purchase?
Note: Enter your answer as a whole number.
c. Project future stock prices for both the old and new policies for years 1, 2, and 3.
Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.
a. Is there any immediate stock price reaction?
b. Number of shares
Price year 1
c. Price year 2
c. Price year 3
No
..........
Transcribed Image Text:Hors d'Age Cheeseworks has been paying a regular cash dividend of $8.5 per share each year for more than a decade. The company is paying out all its earnings as dividends and is not expected to grow. There are 91,000 shares outstanding selling for $89 per share. The company has sufficient cash on hand to pay the next annual dividend. Suppose that, starting in year 1, Hors d'Age decides to cut its cash dividend to zero and announces that it will repurchase shares instead. a. Is there any immediate stock price reaction? Ignore taxes, and assume that the repurchase program conveys no information about operating profitability or business risk. c. b. How many shares will Hors d'Age purchase? Note: Enter your answer as a whole number. c. Project future stock prices for both the old and new policies for years 1, 2, and 3. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. a. Is there any immediate stock price reaction? b. Number of shares Price year 1 c. Price year 2 c. Price year 3 No ..........
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