Answered step by step
Verified Expert Solution
Question
1 Approved Answer
6. DB, Inc. is publicly traded with a stock price of S30 per share and 100,000,000 shares outstanding. It also expects to have earnings of
6. DB, Inc. is publicly traded with a stock price of S30 per share and 100,000,000 shares outstanding. It also expects to have earnings of S200,000,000. DB has $1 billion in surplus cash that it wants to pay to shareholders. One option is to pay a special dividend. The other option is to repurchase stock with the cash. Evaluate the two alternatives below (ignoring any information effects) a. What is the price of the company's stock if it announces i. a special dividend will paid (with all S1 billion) ii. stock will be repurchased (totaling S1 billion) on the open market b. What is the EPS of the company if it i. pays a special dividend with all S1 billion ii. repurchases stock totaling S1 billion on the open market c. What is the P/E ratio of the company if it i. pays a special dividend with all S1 billion ii. repurchases stock totaling S1 billion on the open market d. Give two reasons why the company should choose to pay the special dividend and two reasons why the company should repurchase the stock
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started