You purchased 500 shares in Catalyst, Inc. several years ago for $20. The company previously announced it will be distributing cash to shareholders in a novel way. First, the company will have a tender offer stock repurchase at $30 per share. After the repurchase, it will issue a special dividend of $5.00 per share to the remaining stockholders. Suppose that you want to convert your holdings in Catalyst, Inc. into cash. Assume the tax on dividends is 30 percent and the tax on capital gains is 15 percent. The shares are currently trading for $30. Assume no new information comes out about the company. How much cash will you receive from taking part in the repurchase?

Question

Quizplus · Accepted Answer

The repurchase price is $30 per share, and you have 500 shares. So, you will receive $30 * 500 = $15,000 in cash from the repurchase.

You Purchased 500 Shares in Catalyst, Inc