Beranger Corporation has the following market-value balance sheet. The stock currently sells for 20 a share, and there are 1,000 shares outstanding. The firm will either pay a 1 per share dividend or repurchase 1,000 worth of stock. Ignore taxes.

Assets Liabilities and Equity

Cash 2,000 Debt 10,000

Fixed assets 28,000 Equity 20,000

a. What will be the subsequent price per share if the firm pays a dividend? (4 points)

b. What will be the subsequent price per share if the firm repurchases stock? (5 points)

c. If total earnings of the firm are 2,000 a year, find earnings per share if the firm pays a dividend. (4 points)

d. Now find earnings per share if the firm repurchases stock. (4 points)

e. Find the price-earnings ratio if the firm pays a dividend. (4 points)

f. Find the price-earnings ratio if the firm repurchases stock. (4 points)

g. Why might a stock repurchase make more sense than an extra cash dividend? What is the effect of a stock repurchase on a firms earnings per share? Its price-earnings ratio? (5 points)