Question
Laughingtree Ltd. is considering rewarding its shareholders with a total of $40,000. There are 10,000 shares outstanding. Currently the EPS is $2 per share and
Laughingtree Ltd. is considering rewarding its shareholders with a total of $40,000. There are 10,000 shares outstanding. Currently the EPS is $2 per share and the stock is selling for $60 per share.
i) What would be the effect on per share stock price and shareholders' wealth if the company decided to pay dividends? What would happen if it went for a share repurchase instead? Ignore taxes.
ii) What would be the impact of a dividend on the company's P/E? What will it be if there was a repurchase?
iii) Under the given scenario, which alternative would you want the firm to choose: A dividend or a repurchase? Why?
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i If Laughingtree Ltd decides to pay dividends the pershare stock price would decrease by the amount of the dividend payment Assuming that the total a...
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Introduction To Corporate Finance
Authors: Laurence Booth, Sean Cleary
3rd Edition
978-1118300763, 1118300769
