Erna Corporation is evaluating an extra dividend versus a share repurchase. In eithercase, $53,500 would be spent. Current earnings are $1.79 per share, and the stockcurrently sells for $64 per share. There are 9,000 shares outstanding. Ignore taxes andother imperfections.a. Evaluate the two alternatives in terms of the effect on the price per share of the stockand shareholder wealth per share. (Do not round intermediate calculations andround your answers to 2 decimal places, e.g., 32.16.)b. What will the company's EPS and PE ratio be under the two different scenarios? (Donot round intermediate calculations and round your answers to 2 decimal places,e.g., 32.16.)a. Extra dividendPrice per shareShareholder wealtha. RepurchasePrice per shareShareholder wealthb. Extra dividendEPSPE ratiob. RepurchaseEPSPE ratio

Earning per share shows how much profit is earned by the investor om per share. It shows the…

not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a. Extra dividend Price per share Shareholder wealth ny s a. Repurchase Price per share Shareholder wealth b. Extra dividend EPS

not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a. Extra dividend Price per share Shareholder wealth ny s a. Repurchase Price per share Shareholder wealth b. Extra dividend EPS

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 11P

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Question

Erna Corporation is evaluating an extra dividend versus a share repurchase. In either
case, $53,500 would be spent. Current earnings are $1.79 per share, and the stock
currently sells for $64 per share. There are 9,000 shares outstanding. Ignore taxes and
other imperfections.
a. Evaluate the two alternatives in terms of the effect on the price per share of the stock
and shareholder wealth per share. (Do not round intermediate calculations and
round your answers to 2 decimal places, e.g., 32.16.)
b. What will the company's EPS and PE ratio be under the two different scenarios? (Do
not round intermediate calculations and round your answers to 2 decimal places,
e.g., 32.16.)
a. Extra dividend
Price per share
Shareholder wealth
a. Repurchase
Price per share
Shareholder wealth
b. Extra dividend
EPS
PE ratio
b. Repurchase
EPS
PE ratio

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