a) The required return on Yahoo’s share is 15%. You own 1,000 shares of Yahoo’s Stock. You will receive a $2.30 per share dividend in one year. In two years, Yahoo will pay a liquidating dividend of $53 per share. Compute the current stock price. If you wish to have an equal dividend in the next two years, how will you achieve that through homemade dividends? Assume dividends as annuity.
b) “A stock repurchase carries information content”. What type of information has been referred to in this statement? What impact is likely to have on the stock price of a firm?