Question
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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started