Question
Rudolph Corporation is evaluating an extra dividend versus a share repurchase. In either case, $15,000 would be spent. Current earnings are $2.50 per share, and
Rudolph Corporation is evaluating an extra dividend versus a share repurchase. In either case, $15,000 would be spent. Current earnings are $2.50 per share, and the stock currently sells for $50 per share. There are 4,000 shares outstanding. Ignore taxes and other imperfections. |
a. | Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth per share. (Round your answers to 2 decimal places. (e.g., 32.16)) |
Alternative I | Extra dividend |
Price per share | $ |
Shareholder wealth | $ |
Alternative II | Repurchase |
Price per share | $ |
Shareholder wealth | $ |
b. | What will Rudolph's EPS and PE ratio be under the two different scenarios? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) |
Alternative 1 | |
EPS | $ |
PE ratio | |
Alternative II | |
EPS | $ |
PE ratio | |
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