Palm Tree Corporation’s value of operations is estimated to be $650 million. Palm Tree has $100 million in debt (it has no preferred stock) and 10 million shares of common stock outstanding. Suppose Palm Tree has decided to distribute to its shareholders $65 million, which it is presently holding in T-bills.
a. Assume that Palm Tree has not yet made the distribution. What is Palm Tree’s intrinsic value of equity? (10 points) What is its intrinsic stock price per share?
b. Now, suppose that Palm Tree has just made the $65 million distribution in the form of dividends. What is Palm Tree’s intrinsic stock price per share right after this dividend payment?
c. Suppose instead that Palm Tree has just made the $65 million distribution in the form of a stock repurchase. How many shares did Palm Tree repurchase? (5 points) What is its intrinsic stock price per share right after the repurchase?