Share Repurchase Flychucker SA is evaluating an extra dividend versus a share repurchase. In either case 5,000

Question:

Share Repurchase Flychucker SA is evaluating an extra dividend versus a share repurchase. In either case €5,000 would be spent. Current earnings are €0.95 per share, and the equity currently sells for €40 per share. There are 200 shares outstanding. Ignore taxes and other imperfections in answering parts

(a) and (b).

(a) Evaluate the two alternatives in terms of the effect on the price per share of the equity and shareholder wealth.

(b) What will be the effect on Flychucker’s EPS and P/E ratio under the two different scenarios?

(c) In the real world, which of these actions would you recommend? Why?

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