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You own one share in a company called Invest
Co. Inc. Examining the balance sheet, you have determined that the firm has
$100,000 cash, equipment worth $900,000, and 100,000 shares outstanding.
Calculate the price/value of each share in the firm, and explain how your wealth
is affected if:
A. The
firm pays out dividends of $1 per share.
B. The
firm buys back 10,000 shares for $10 cash each, and you choose to sell your
share back to the company.
C. The
firm buys back 10,000 shares for $10 cash each, and you choose not to sell your
share back to the company.
D. The
firm declares a 2-for-1 stock split.
E. The
firm declares a 10% stock dividend.
F. The firm buys new equipment for $100,000,
which will be used to earn a return equal to the firm’s discount rate.
