KMS Corporation has assets with a market value of $500 million, $50 million of which are cash. It has debt of $200 million, and 10 million shares outstanding. Assume perfect capital markets.
a. What is its current stock price?
b. If KMS distributes $50 million as a dividend, what will its share price be after the dividend is paid?
c. If instead, KMS distributes $50 million as a share repurchase, what will its share price be once the shares are repurchased?
d. What will its new market debt-equity ratio be after either transaction?