Harte Textiles Inc., a maker of custom upholstery fabrics, is concerned about preserving the wealth of its stockholders during a cyclical downturn in the home furnishings business. The company has maintained a constant dividend payout of $2.00 tied to a target payout ratio of 40%. Management is preparing a share repurchase recommendation to present to the firm’s board of directors. The following data have been gathered from the past 2 years.

a. How many shares should the company have outstanding in 2019 if its earnings available for common stockholders in that year are $1,200,000 and it pays a dividend of $2.00, given that its desired payout ratio is 40%?
b. How many shares would Harte have to repurchase to have the level of shares outstanding calculated in part a?

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2019 2018 Earnings available for common stockholders Number of shares outstanding Earnings per share Market price per share Price/earnings ratio $1,260,000 $1,200,000 300,000 4.20 300,000 $ 4.00 $ 23.50 20.00 5.6 5.0