Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Galles Corporation is evaluating an extra dividend versus a share repurchase. In either case, $11,000 would be spent. Current earnings are $1.90 per share, and

Galles Corporation is evaluating an extra dividend versus a share repurchase. In either case, $11,000 would be spent. Current earnings are $1.90 per share, and the stock currently sells for $55 per share. There are 4,000 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.)

Alternative 1
EPS $
P/E ratio

Alternative II
EPS $
P/E ratio

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

Recommended Textbook for

Corporate Financial Management

Authors: Douglas R. Emery, John D. Finnerty, John D. Stowe

4th Edition

1935938002, 9781935938002

More Books

Students also viewed these Finance questions