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Stratton Oakmont Inc. wishes to distribute $15,000 of its earnings to its shareholders. It is deciding whether to do this through the payment of dividends
Stratton Oakmont Inc. wishes to distribute $15,000 of its earnings to its shareholders. It is deciding whether to do this through the payment of dividends or through a share repurchase. Stratton Oakmont currently has 4,000 shares outstanding with a stock price of $60 per share. Its current EPS is $3. Ignore taxes and other imperfections in answering parts (a) and (b). a. Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth. b. What will be the effect on the company's EPS and PE ratio under the two different scenarios? c. Which of these actions would you recommend? Why
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