The CEO of Trans World Airlines (TWA),Jack Frye,wants to distribute $1B of cash by issuing a special dividend.Selected financial information for TWA is provided in the table below.Mr.Frye owns 51% of the common shares of TWA before the extra dividend.What is his total wealth in cash and shares after the special dividend?
Trans World Airlines
Selected Financial Information

Question

Quizplus · Accepted Answer

Dividend per share = 11ea7fdb_fc51_b57c_a768_d9ff29321b4b_TB2902_11 Dividend per share = $6.67 After the extra dividend they will have cash from the dividend: Cash = 0.51 × 150M × $6.667 Cash = $510M P_ex = P_cum - Div P_ex = $62.725 - $6.667 P_ex = $56.058 After the dividend, their shares are worth: Value of shares = 0.51 × 150M × P_ex Value of shares = 0.51 × 150M × $56.058 Value of shares = $4,288.437M Total wealth = $510M + $4288.4625M Total wealth = $4,798.4625M

The CEO of Trans World Airlines (TWA),Jack Frye,wants to Distribute