BD_SM_c17 - Chapter 17 Payout Policy 17-1 a b March 29...

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Chapter 17 Payout Policy 17-1. a. March 29 b. March 30 17-2. There are 3 mechanisms: 1) In an open market repurchase the firm repurchases the shares in the open market. This is the most common mechanism in the U.S. 2) In a tender offer the firm announces the intention to all shareholders to repurchase a fixed number of shares for a fixed price, conditional on shareholders agreeing to tender their shares. If not enough shares are tendered, the deal can be cancelled. 3) A targeted repurchase is similar to a tender offer except it is not open to all shareholders, only specific shareholder can tender their shares in a targeted repurchase. 17-3. a. $0.50 b. $15 c. Both are the same. 17-4. If you sell 0.5/15 of one share you receive $0.50 and your remaining shares will be worth $14.50, leaving you in the same position as if the firm had paid a dividend. 17-5. Because the payoff of the option depends upon Oracle’s future stock price, you would prefer that Oracle use share repurchases, as it avoids the price drop that occurs when the stock price goes ex-dividend. 17-6. a. P=$1.60/0.12=$13.33 b. P=$2/0.12=$16.67 17-7. 58.33% in 1981 and 37.5% in 1982. 17-8. 1988, 1989, or 1990. 17-9. a. The price drop was $2.63/$$3.08 = 85.39% of the dividend amount, implying an effective tax rate of 14.61%. b. i
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132 Berk/DeMarzo • Corporate Finance 17-10. d 17-11. Dividend capture theory states that investors with high effective dividend tax rates sell to investors with low effective dividend tax rates just before the dividend payment.
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