Question
The following financial data on the Bond Recording Company are? available: Earnings available for common stockholders $700,000 Number of shares of common stock outstanding 350000
The following financial data on the Bond Recording Company are? available:
Earnings available for common stockholders | $700,000 |
Number of shares of common stock outstanding | 350000 |
Earnings per share ($700,000/350,000) | $2 |
Market price per share | $30 |
Price/earnings (P/E) ratio ($30/$2) | 15 |
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. The firm is currently considering whether it should use 350,000 of its earnings to help pay cash dividends of?$1.00 per share or to repurchase stock at $31 per share.
a. Approximately how many shares of stock can the firm repurchase at the ?$31?-per-share price, using the funds that would have gone to pay the cash?dividend?
b.??Calculate the EPS after the repurchase.
c. If the stock still sells at 15 times? earnings, what will the market price be after the? repurchase?
d. Compare the? pre- and? post-repurchase earnings per share.
e.??Compare and contrast the? stockholders' positions under the dividend and repurchase alternatives. What are the tax implications under each?alternative?
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