4. Amarillos Best Company (ABC) has released the following information.

earnings available to common stockholders $5,000,000

Number of shares of common stock outstanding 1,000,000

Market price per share $50

Retained earnings 11,600,000

(a) What are ABC's current earnings per share?

(b) What is ABC's current P/E ratio?

(c) ABC wants to use half of its earnings either to pay shareholders dividends or to repurchase

shares for inclusion in the firm's employee stock ownership plan. If the firm pays a cash dividend,

what will be the dividend per share received by existing shareholders?

(d) Instead of paying the cash dividend, what if the firm uses half of its earnings to pay $55 per

share to repurchase the shares, what will be the firm's new EPS? What should be the firm's new

share price?

(e) Compare the impact of a stock dividend and stock repurchase on shareholder wealth