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Axer Corp wishes to distribute $15,000 of its earnings to its shareholders. It is deciding whether to do this through the payment of dividends or
Axer Corp wishes to distribute $15,000 of its earnings to its shareholders. It is deciding whether to do this through the payment of dividends or through a share repurchase. Axer Corp currently has 4,000 shares outstanding with a stock price of $60 per share. Its current EPS is $3. Ignore taxes and other imperfections in answering parts (a) and (b).
- What are two alternatives in terms of the effect on the price per share of the stock and shareholder wealth?
- What will be the effect on the companys EPS and PE ratio under the two different scenarios?
- Which of these actions would you recommend?
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