(Repurchase

of

stock)

The Dunn Corporation is planning to pay dividends of

$480,000.

There are

240,000

shares outstanding, and earnings per share are

$6.

The stock should sell for

$52

after the ex-dividend date. If, instead of paying a dividend, the firm decides to repurchase stock,

a. What should be the repurchase price?

b. How many shares should be repurchased?

c. What if the repurchase price is set below or above your suggested price in part

a?

d. If you own 100 shares, would you prefer that the company pay the dividend or repurchase stock?

Question content area bottom

Part 1

a. What should be the repurchase price?