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(a)   Happy Corp. has $50 million in excess cash and no debt. The

firm expects to generate additional free cash flows of $40 million per year in subsequent years and will pay out these future free cash flows as regular dividends.  Happy Corp.'s cost of capital is 10% and there are 10 million shares outstanding.  Happy Corp.'s board decided to use the entire $50 million to repurchase shares. Assume that you own 2,500 shares of Happy Corp. stock and that Happy Corp. uses the entire $50 million to repurchase shares.  Assume Happy Corp. goes ahead with the share repurchase. What is the dollar value of regular annual dividends in the future?
(b)   Use the numbers from above question. Suppose you are unhappy with the company's decision to repurchase and would prefer that Happy Corp. used the excess cash to pay a special dividend. Assume perfect capital markets. What trade you could place in order to receive the same amount of cash equivalent to Happy Corp. paying the special dividend?
(c)   Clovix Corporation has $285 million in cash and 140 million shares outstanding. Suppose the corporate tax rate is 35% and investors pay no taxes on dividends, capital gains, or interest income. Investors had expected Clovix to pay out the $285 million through a share repurchase. Suppose instead that Clovix announces it will permanently retain the cash and the cash will generate interest incomes. Assume tax is the only market imperfection. If there are no other benefits of retaining the cash, how will Clovix' stock price change upon this announcement?

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