Zeta Corp Has 1,000 Shares Outstanding

question 78

Multiple Choice

Zeta Corp has 1,000 shares outstanding.Its stock is priced at $100 a share and shareholders expect Zeta to pay dividends of $10 a year in perpetuity.Now the president suddenly announces that it will keep the total payout the same but will pay only a quarter of the total amount as dividends and use the remaining cash to buy back stock.What will happen to the share price now and how much will the share price grow each year?

• A) The value of the shares will be unchanged by the announcement and will not grow.0%.
• B) The share price will be unchanged by the announcement. Subsequently the share price will grow by 7.5% each year.
• C) The share price will halve and then grow by 7.5% a year.
• D) The share price will be unchanged by the announcement and will decline by 10% a year.

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Definitions:

Judicial Restraint

A philosophy of law where judges play minimal policymaking roles, leaving policy decisions to the legislature and executive branches of government.

Judicial Activism

Refers to judicial rulings suspected of being based on personal or political considerations rather than on existing law.

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A principle of judicial review that allows courts to evaluate and invalidate actions by other branches of government if those actions are unconstitutional.

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