The Featherstone Corp. has $8 million in cash for its next dividend but is considering a repurchase

Question:

The Featherstone Corp. has $8 million in cash for its next dividend but is considering a repurchase instead. Featherstone has 10 million shares outstanding, currently selling at $40 per share. The P/E is 20 on EPS of $2.

a. If the dividend is paid, how large will it be per share?

b. If stock is repurchased, how many shares will remain outstanding, and what will the new EPS be?

c. If the P/E holds at 20, what will be the new stock price, and how much per share will continuing stockholders have gained? How does that compare with the dividend that could have been paid?

d. Are there other considerations (words only)?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...