Clorox Inc is evaluating paying an extra dividend (option A) versus a share repurchase plan (option B). In each case, $14,500 will be spent. Current earnings are $1.65 per share and the stock currently sells for $58 per share. There are 2000 shares outstanding.

What is the effect of option A and B on the shareholder wealth? Ignore taxes.

a) Option A: Shareholder wealth reduces; Option B: Shareholder wealth remains same

b) Option A: Shareholder wealth remains same; Option B: Shareholder wealth remains same

c) Option A: Shareholder wealth reduces; Option B: Shareholder wealth increases.

d) Option A: Shareholder wealth increases; Option B: Shareholder wealth reduces.

Answer is B