Hodgkiss Corporation is evaluating an extra dividend

versus a share repurchase. In either case, $9,065 would be spent. Current

earnings are $2.65 per share, and the stock currently sells for $59 per share.

There are 4,900 shares outstanding. Ignore taxes and other imperfections in

answering the first two questions.

a. Evaluate the two alternatives in terms of the effect on the price per

share of the stock and shareholder wealth.

b. What will be the effect on the company's EPS and PE ratio under the

two different scenarios?

c. In the real world, which of these actions would you recommend? Why?