1. Dragon X Corporation has assets with a market value of $400 million, $40 million of which are cash. It has debt of $150 million, and 8 million shares outstanding. Assume perfect capital markets.
a. What is Dragon X Corp.’s current stock price?
b. If Dragon X distributes $20 million as a dividend, what will its share price be after the dividend is paid?
c. If instead, Dragon X distributes $20 million as a share repurchase, what will its share price be once the shares are repurchased?
d. What will the new market debt-equity ratio be after either transaction?
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