Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A company wants to pay $10,000 to its shareholders. It can do this either by a special dividend or a share repurchase. The current stock

image text in transcribed
A company wants to pay $10,000 to its shareholders. It can do this either by a special dividend or a share repurchase. The current stock price is $45 a share and current earnings are $250 a share. There are 2500 shares outstanding. Assume that there are no taxes. a. If the company pays the special dividend, what will be the new stock price? b. What will be the price earnings ratio after the dividend? c. If the company does the repurchase, how many shares will it buy? d. If the company repurchases shares, what will be the new stock price? Which way will the stockholder be better off and why? e

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions