Lulu Inc

Subject:FinancePrice:3.86 Bought30

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Lulu Inc.’s current stock price is $50, and it will pay a $5 special dividend. Assume capital gain tax rate is 20% and dividend tax rate is 40%.

a. What will its share price be just after the dividend is paid?

b. An investor buys the share at $50 and immediately sells it after receiving the divided. How much tax the investor needs to pay per share?

Suppose Lulu made a surprise announcement that it would do a share repurchase rather than pay a special dividend.

c. What net tax savings per share for an investor would result from this decision?

d. What would happen to Lulu’s stock price upon the announcement of this change?