# Lunch Crunk - Get Some!

I DON’T KNOW WHAT WE’RE YELLING ABOUT! - brick tamland i already am hungover, this is way too much info. just ask me an a, b,c question already.

nice summary ditch.

Corp Fin questions are coming which pertain to the above info.

i refuse to read the top because of my pounding headache, so bring it boyeeeee.

youre a wild man ditch

Pearl City Breweries has 8 million shares outstanding that are currently trading at \$34 per share. The company is choosing whether to distribute \$22 million as dividends or to use the same amount to repurchase its shares. Ignoring tax effects, what will be the amount of total wealth from owning one share of Pearl City Breweries under each of these alternatives? Cash dividend Share repurchase A) \$34.00 \$34.00 B) \$31.25 \$37.00 C) \$31.25 \$34.00 What is the impact on shareholder wealth of a share repurchase and a cash dividend of equal amount when the tax treatment of the two alternatives is the same? A) A share repurchase is equivalent to a cash dividend of an equal amount, so total shareholder wealth will be the same. B) A share repurchase will sometimes lead to higher total shareholder wealth than a cash dividend of an equal amount. C) A share repurchase will always lead to higher total shareholder wealth than a cash dividend of an equal amount

1. a - same effect regardless of method 2. a again.
1. A (total wealth = SAME from both methods) 2. A (cash Div and Share repo are economically equivalent)

Your answer: B was incorrect. The correct answer was A) \$34.00 \$34.00 If the company pays a cash dividend, the dividend per share will be \$22 million/8 million = \$2.75. The value of its shares will be: So the total wealth from owning one share will be \$31.25 + \$2.75 = \$34.00. If the company repurchases shares, it can buy \$22 million/\$34 = 647,058 shares. The value of one share would then be: If you remember that both a cash dividend and a share repurchase for cash leave shareholder wealth unchanged, this question does not require calculations of the amounts. Your answer: A was correct! Assuming that the tax treatment of a share repurchase and a cash dividend of equal amount is the same, a share repurchase is equivalent to a cash dividend payment, and shareholder wealth will be the same.

Which of the following is least likely a method by which firms repurchase their shares? A) Exercise a call provision. B) Tender offer. C) Direct negotiation. Jim Davis and Thurgood Owen, two equity analysts at Ferguson Capital Management, were reviewing the financial statements of Peregrine Foodstuffs Ltd. Davis and Owen noticed that Peregrine has been repurchasing its common shares in the market over the past three years. Owen thought this was an important issue to look into in greater detail. Upon completion of his review, Owen made the following two statements: Statement 1: Peregrine has bought back shares in the open market during its repurchase program. This method of repurchase gave the company the flexibility to choose the timing of the transaction. Statement 2: Peregrine plans to buy back shares by making tender offers during the coming year. By making tender offers, the company will be able to repurchase shares at a discount to the prevailing market price. With respect to Owen’s statements: A) both are correct. B) both are incorrect. C) only one is correct.

1. A (EY = ATCOD) 4. A 5. A 6. A (A is not even an option to buyback) 7. C (S1 = CORRECT, S2 = FALSE)