Question
Galles Corporation is evaluating an extra dividend versus a share repurchase. In either case, $13,000 would be spent. Current earnings are $1.30 per share, and
| Galles Corporation is evaluating an extra dividend versus a share repurchase. In either case, $13,000 would be spent. Current earnings are $1.30 per share, and the stock currently sells for $52 per share. There are 2,000 shares outstanding. Ignore taxes and other imperfections. |
| a. | Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth per share. (Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.) |
| Alternative I | Extra dividend |
| Price per share | $ |
| Shareholder wealth | $ |
| Alternative II | Repurchase |
| Price per share | $ |
| Shareholder wealth | $ |
| b. | What will the company's EPS and P/E ratio be under the two different scenarios? (Do not round intermediate calculations. Round your final answers to 2 decimal places, e.g., 32.16.) |
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