Question

estimated stock price post ex-dividend

It appears that the provider of the response copied their answer directly from the course solutions manual. Can someone please share the calculations used to derivethe answer?

eps 5.50
40 M shares outstanding
50% targeted payout
planned price per share 2.75
previous year end stock price $130.00

House of Herring plans to pay the entire dividend early in January 2016. All corporate and personal taxes were repealed in 2014.
a. Other things equal, what will be House of Herring’s stock price after the planned dividend payout?

b. Suppose the company cancels the dividend and announces that it will use the money saved to repurchase shares. What happens to the stock price on the announcementdate? Assume that investors learn nothing about the company’s prospects from the announcement. How many shares will the company need to repurchase?
c. Suppose the company increases dividends to $5.50 per share and then issues new shares to recoup the extra cash paid out as dividends. What happens to the with- andex-dividend share prices? How many shares will need to be issued? Again, assume investors learn nothing from the announcement about House of Herring’s prospects.

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