Here are key financial data for House of Herring Inc.: House of Herring plans to pay the entire… 1 answer below »

Here are key financial data for House of Herring Inc.:

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House of Herring plans to pay the entire dividend early in January 2026. All corporate and

personal taxes were repealed in 2024.

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 announcement date? Assume

that investors learn nothing about the company’s prospects from the announcement. How

many shares will the company need to repurchase?

c. Suppose that, instead of canceling the dividend, 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- and ex-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.