Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

P14-17-Stock repurchase The following financial data on the Bond Company are available; Earning available for common stockholders $800,000 Number of shares of common stock outstanding

P14-17-Stock repurchase The following financial data on the Bond Company are available;

Earning available for common stockholders $800,000

Number of shares of common stock outstanding 400,000

Earning per share ($800,00*400,00) $2

Market price per share $20

Price/earnings (P/E) ratio ($20*$2) 10

The firm is currently considering whether it should use $400,000 of its earnings to pay cash dividends of $1 per share or to repurchase at $21-per share.

A) Approximately how many shares of stock can the firm repurchase at the $21-per-share price, using the funds that would have gone to pay the cash dividend?

B) Calculate the EPS after the purchase. Explain your calculations.

C) If the stock still sales at 10 times earnings, what will the market price be after the repurchase?

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

Short Term Financial Management

Authors: John Zietlow, Matthew Hill, Terry Maness

5th Edition

1516512405, 9781516512409

More Books

Students also viewed these Finance questions