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 40%. 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 $1,260,000 $1,200,000

Number of shares outstanding 300,000 300,000

Earnings per share $4.20 $4.00

Market price per share $23.50 $20.00

Price/earnings ratio 5.6 5.0

a. How many shares should the company have outstanding in order to combine the earnings available for common stockholders of $1,200,000 in the year 2003 and a dividend of $2.00 to produce the desired payout ratio of 40%?

b. How many shares would Harte have to repurchase to have the level of shares outstanding calculated in part a?