Repurchase versus Cash Dividend. Ambers Corporation is deciding whether to pay out $500 in excess cash in the form of an extra dividend or a share repurchase. Current earnings are $2.50 per share, and the stock sells for $25. The market value balance sheet before paying out the $500 is as follows:

Evaluate the two alternatives in terms of the effect on the price per share of the stock, the EPS, and the PE ratio.

Market Value Balance Sheet (before paying excess cash) $500 Debt 2,500 Equity $3,000 Total Excess cash Other assets Total $500 2,500 $3,000