The effects of share repurchase and cash dividend on the price per share of the stock and shareholders’ wealth. Introduction: Share repurchase: A company that buys its own stock through the exchange of cash is termed as a stock repurchase. It is like the buyback of shares. Cash dividend: Cash dividend is the dividend which is payable to the shareholders on distribution of certain amount of company’s earnings.

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Answer 1

Question

Chapter 14, Problem 12QP

a)

Summary Introduction

To determine: The effects of share repurchase and cash dividend on the price per share of the stock and shareholders’ wealth.

Introduction:

Share repurchase:

A company that buys its own stock through the exchange of cash is termed as a stock repurchase. It is like the buyback of shares.

Cash dividend:

Cash dividend is the dividend which is payable to the shareholders on distribution of certain amount of company’s earnings.

b)

Summary Introduction

To determine: The effects on the company’s EPS (Earnings per Share) and PE ratio (Price Earnings ratio).

c)

Summary Introduction

To discuss: Whether the share repurchase or cash dividend is recommended.

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Students have asked these similar questions

Ewing Corporation is evaluating an extra dividend versus a share repurchase. In either case, $10,000 would be spent. Current earnings are $3 per share, and the stock currently sells for $50 per share. There are 5,000 shares outstanding. Ignore taxes and other market imperfections (e.g. transaction cost) in answering the questions. 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 Ewing’s EPS and PE ratio under the two different scenarios?

Built Rite Corp. is evaluating an extra dividend versus a share repurchase. In either case, $7,500 would be spent. Current earnings are $1.24 per share, and the stock currently sells for $32 per share. There are 5,000 shares outstanding. Ignore taxes and other imperfections. You own one share of stock in this company. If the company issues the dividend, your total investment will be worth ____ as compared to ____ if the company opts for a share repurchase.

Taco Time Corporation is evaluating an extra dividend versus a share repurchase. In either case, $22,960 would be spent. Current earnings are $3.80 per share, and the stock currently sells for $92 per share. There are 4,100 shares outstanding. Ignore taxes and other imperfections. What will the company’s EPS and PE ratio be under the two different scenarios?

Answer 2

Question

Chapter 14, Problem 12QP

a)

Summary Introduction

To determine: The effects of share repurchase and cash dividend on the price per share of the stock and shareholders’ wealth.

Introduction:

Share repurchase:

A company that buys its own stock through the exchange of cash is termed as a stock repurchase. It is like the buyback of shares.

Cash dividend:

Cash dividend is the dividend which is payable to the shareholders on distribution of certain amount of company’s earnings.

b)

Summary Introduction

To determine: The effects on the company’s EPS (Earnings per Share) and PE ratio (Price Earnings ratio).

c)

Summary Introduction

To discuss: Whether the share repurchase or cash dividend is recommended.

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Answer 3

Question

Chapter 14, Problem 12QP

a)

Summary Introduction

To determine: The effects of share repurchase and cash dividend on the price per share of the stock and shareholders’ wealth.

Introduction:

Share repurchase:

A company that buys its own stock through the exchange of cash is termed as a stock repurchase. It is like the buyback of shares.

Cash dividend:

Cash dividend is the dividend which is payable to the shareholders on distribution of certain amount of company’s earnings.

b)

Summary Introduction

To determine: The effects on the company’s EPS (Earnings per Share) and PE ratio (Price Earnings ratio).

c)

Summary Introduction

To discuss: Whether the share repurchase or cash dividend is recommended.

Expert Solution & Answer

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Answer 4

Question

Chapter 14, Problem 12QP

a)

Summary Introduction

To determine: The effects of share repurchase and cash dividend on the price per share of the stock and shareholders’ wealth.

Introduction:

Share repurchase:

A company that buys its own stock through the exchange of cash is termed as a stock repurchase. It is like the buyback of shares.

Cash dividend:

Cash dividend is the dividend which is payable to the shareholders on distribution of certain amount of company’s earnings.

b)

Summary Introduction

To determine: The effects on the company’s EPS (Earnings per Share) and PE ratio (Price Earnings ratio).

c)

Summary Introduction

To discuss: Whether the share repurchase or cash dividend is recommended.

Expert Solution & Answer

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Answer 5

Chapter 14, Problem 12QP

a)

Summary Introduction

To determine: The effects of share repurchase and cash dividend on the price per share of the stock and shareholders’ wealth.

Introduction:

Share repurchase:

A company that buys its own stock through the exchange of cash is termed as a stock repurchase. It is like the buyback of shares.

Cash dividend:

Cash dividend is the dividend which is payable to the shareholders on distribution of certain amount of company’s earnings.

b)

Summary Introduction

To determine: The effects on the company’s EPS (Earnings per Share) and PE ratio (Price Earnings ratio).

c)

Summary Introduction

To discuss: Whether the share repurchase or cash dividend is recommended.

Answer 6

Chapter 14, Problem 12QP

a)

Summary Introduction

To determine: The effects of share repurchase and cash dividend on the price per share of the stock and shareholders’ wealth.

Introduction:

Share repurchase:

A company that buys its own stock through the exchange of cash is termed as a stock repurchase. It is like the buyback of shares.

Cash dividend:

Cash dividend is the dividend which is payable to the shareholders on distribution of certain amount of company’s earnings.

Answer 7

Chapter 14, Problem 12QP

a)

Summary Introduction

To determine: The effects of share repurchase and cash dividend on the price per share of the stock and shareholders’ wealth.

Introduction:

Share repurchase:

A company that buys its own stock through the exchange of cash is termed as a stock repurchase. It is like the buyback of shares.

Cash dividend:

Cash dividend is the dividend which is payable to the shareholders on distribution of certain amount of company’s earnings.

Answer 8

b)

Summary Introduction

To determine: The effects on the company’s EPS (Earnings per Share) and PE ratio (Price Earnings ratio).

Answer 9

b)

Summary Introduction

To determine: The effects on the company’s EPS (Earnings per Share) and PE ratio (Price Earnings ratio).

Answer 10

c)

Summary Introduction

To discuss: Whether the share repurchase or cash dividend is recommended.

Answer 11

c)

Summary Introduction

To discuss: Whether the share repurchase or cash dividend is recommended.

Answer 12

Expert Solution & Answer

Answer 13

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Answer 14

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Answer 15

Ch. 14.1 - Prob. 14.1ACQ Ch. 14.1 - Prob. 14.1BCQ Ch. 14.1 - Prob. 14.1CCQ Ch. 14.2 - Prob. 14.2ACQ Ch. 14.2 - Prob. 14.2BCQ Ch. 14.2 - Prob. 14.2CCQ Ch. 14.3 - Prob. 14.3ACQ Ch. 14.3 - Prob. 14.3BCQ Ch. 14.5 - Prob. 14.5ACQ Ch. 14.5 - Prob. 14.5BCQ

Solution Summary: The author explains the effects of share repurchase and cash dividend on the price per share of the stock and shareholders' wealth.

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To determine: The effects on the company’s EPS (Earnings per Share) and PE ratio (Price Earnings ratio).

To discuss: Whether the share repurchase or cash dividend is recommended.

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Chapter 14 Solutions