Stock Repurchase. Salmon Arm Corporation is evaluating an extra dividend versus a share repurchase. In either case, $14,500 would be spent. Current earnings are $1.65 per share, and the stock currently sells for $58 per share. There are 2,000 shares outstanding. Ignore taxes and other imperfections in answering the first two questions.
a. Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth.

 

Cash Dividend Scenario Current share value Current equity value Cash dividend amount Revised equity value Revised share price Wealth, per share Share Repurchase Scenario Current share value Current equity value Shares repurchased Revised equity value Revised share price Wealth per share = $58 whether repurchased or held.