The Southern Appliance Company (SAC) has a current free cash flow of $10 million that is expected to grow in perpetuity at a constant annual rate of 5 percent. The firm has $40 million of cash and 10 million shares outstanding. SAC has no debt, and its shareholders expected a return of 10 percent on their equity investment. Markets assumed to be perfect. Answer the following questions:

1. What is the SACs share price? E
2. If SAC pays an immediate dividend of $40 million, what is its ex-dividend share price and the effect on its share holders wealth per share immediately after the dividends is paid?
3. If SAC immediately uses its cash to buy its shares in the open market, what is the effect on its share price and on its shareholders wealth per share immediately after the buyback?
4. If SAC issue two million new shares and uses the proceeds and it $40 million of ash to pay an immediate dividend, what is its ex-dividend share price and the effect on its shareholders wealth per share immediately after the dividend is paid?
5. How much should SAC borrow and immediately add to the proceeds of its $40 million of cash in order to pay the same immediately dividend per share as in the case of the tow million share issuance in the previous question? What is the ex-dividend share price and the effect on its shareholders wealth per share immediately after the dividend is paid (recall that, in a perfect market, the value of a firms noncash assets is independent of its capital structure)?