Practice exercise $(2)$

ABC Oman is evaluating an extra dividend versus a share repurchase. In either case OMR $5,000$ cash would be spent. Current earnings are OMR $0\mathrm{.}950$ per share $($EPS$)$ and the stock currently sells for OMR $4$ per share. There are $10,000$ shares outstanding. Ignore taxes and other imperfections:

Evaluate the two alternatives in terms of effect on the price per share of the stock and shareholder wealth.

What will be the effect on ABC Oman's EPS and PE ratio under the two different scenarios?

Which one option would you prefer? Why?