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ABCC. is an all equity firm. Its current stock price is $1.95 and it has 2 million shares outstanding. On 1 November, ABC announces that it will pay a dividend of $0.20 per share; the ex-dividend date is 15 November; the dividend will be paid on 25 November. 2.1 Other things equal, what will ABC 's stock price be after the planned dividend payout? [1 mark] 2.2 On which date will the stock price drop? [1 mark] 2.3 Suppose ABC cancels the dividend and announces that it will use the money to repurchase shares. Assume a perfect capital market. What happens to the stock price on the announcement date? [1 mark] 2.4 How many shares can ABC buy back? [2 marks] 2.5 What's the likely answer to question 2.3 if there is information asymmetry? Explain why. [1 mark] ABCC. is an all equity firm. Its current stock price is $1.95 and it has 2 million shares outstanding. On 1 November, ABC announces that it will pay a dividend of $0.20 per share; the ex-dividend date is 15 November; the dividend will be paid on 25 November. 2.1 Other things equal, what will ABC 's stock price be after the planned dividend payout? [1 mark] 2.2 On which date will the stock price drop? [1 mark] 2.3 Suppose ABC cancels the dividend and announces that it will use the money to repurchase shares. Assume a perfect capital market. What happens to the stock price on the announcement date? [1 mark] 2.4 How many shares can ABC buy back? [2 marks] 2.5 What's the likely answer to question 2.3 if there is information asymmetry? Explain why. [1 mark]

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