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What is the size of the special dividend

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Rockford Cheeses Inc. has 150 million shares outstanding, a current share price of $25, and no debt. Rockford 's management believes that the shares are underpriced, and that the true value is $30 per share. Rockford plans to pay $450 million in cash to its shareholders by repurchasing shares. Management expects that very soon new information about a new product line will come out that will cause investors to revise their opinion of the firm and agree with Rockford 's assessment of the firm's true value.

a. Assume that Rockford is not able to repurchase shares prior to the market becoming aware of the new information regarding Rockford 's true value. What will be the number of shares outstanding following the repurchase if Rockford repurchases the shares following the release of the new information?

b. What will be the price per share after the release of the new information regarding the true value of Rockford, and following the repurchase in a.? Show computations.

c. What is the size of the special dividend that Rockford can pay shareholders instead of the repurchase?

d. What will be the price per share is the special dividend is paid out after the release of the new information regarding the true value of Rockford and there is no repurchase of shares?

Reference no: EM132403022

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