Question
Stock repurchase: Harte Textiles, Inc., a maker of custom upholstery fabrics, is concerned about preserving the wealth of its stockholders during a cyclic down- turn
Stock repurchase: Harte Textiles, Inc., a maker of custom upholstery fabrics, is concerned about preserving the wealth of its stockholders during a cyclic down- turn in the home furnishings business. The company has maintained a constant dividend payout of $2.00 tied to a target payout ratio of 30%. Management is preparing a share repurchase recommendation to present to the firms board of directors. The following data have been gathered from the last two years:
2014 | 2015 | |
Earnings available for common stockholders | $1,680,000 | $1,600,000 |
Number of shares outstanding | 300,000 | 300,000 |
Earnings per share | $5.60 | $5.33 |
Market price per share | $31.36 | $26.65 |
Price/earnings ratio | 5.6 | 5.0 |
a. How many shares should the company have outstanding in 2015 if its earnings available for common stockholders in that year are $1,600,000 and it pays a dividend of $2.00, given that its desired payout ratio is 30%?
b. How many shares would Harte have to repurchase to have the level of shares outstanding calculated in part a?
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