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3. Bacchus Plc has

£ 50

million in excess cash and no debt. It expects to gen...

May 7, 2024

a Solution

Cum-Dividend Price Calculation: The cum-dividend price is the price of the stock just before the dividend is distributed. To calculate this, we need to consider the total value of the dividends to be paid and the number of shares outstanding. The cum-dividend price can be found by adding the per-share dividend to the current stock price. Since the current stock price is not given, we can only calculate the per-share dividend. The per-share dividend is the total dividend amount divided by the number of shares outstanding

a Answer

The cum-dividend price per share is the current stock price plus £5.

Key Concept

Cum-Dividend Price

Explanation

The cum-dividend price includes the value of the dividend that is about to be paid.

b Solution

Share Repurchase Calculation: To calculate the number of shares Bacchus Plc can repurchase, we divide the total amount of excess cash available for the repurchase by the price per share. Assuming the current market price per share is the same as the cum-dividend price calculated in part a, we can use that price for this calculation

b Answer

The number of shares Bacchus Plc can repurchase is 10 million.

Key Concept

Share Repurchase

Explanation

The number of shares repurchased is determined by the amount of cash available and the price per share.

c Solution

Equivalent Cash from Share Sale: To find out how many shares need to be sold to receive the equivalent dividend amount, we calculate the dividend per share and then divide the desired cash amount by the dividend per share. This will give us the number of shares that need to be sold

c Answer

To receive the equivalent of a dividend payout, the shareholder would need to sell 500 shares.

Key Concept

Equivalent Dividend from Share Sale

Explanation

The number of shares to sell is calculated to match the cash amount that would have been received as a dividend.

d Solution

Undoing the Dividend: To "undo" the dividend, the shareholder can reinvest the dividend received by purchasing additional shares of the company at the ex-dividend price, which is the price of the stock after the dividend has been paid out and typically lower than the cum-dividend price

d Answer

To undo the dividend, reinvest the dividend received into purchasing additional shares at the ex-dividend price.

Key Concept

Reinvesting Dividends

Explanation

Reinvesting the dividend allows the shareholder to maintain their position in the company without the additional cash from the dividend.