PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 16, Problem 20PS
Repurchases and EPS Many companies use stock repurchases to increase earnings per share. For example, suppose that a company is in the following position:
The company now repurchases 200,000 shares at $200 a share. The number of shares declines to 800,000 shares and earnings per share increase to $12.50. Assuming the price–earnings ratio stays at 20, the share price must rise to $250. Discuss.
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“Many companies use stock repurchases to increase earnings per share. For example, supposethat a company is in the following position:Net profit $10 millionNumber of shares before repurchase 1 millionEarnings per share $10Price–earnings ratio 20Share price $200The company now repurchases 200,000 shares at $200 a share. The number of sharesdeclines to 800,000 shares and earnings per share increase to $12.50. Assuming the price–earnings ratio stays at 20, the share price must rise to $250.”Discuss.
A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,800 and other assets of $5,700. Equity is worth $7,500. The firm has 750 shares of stock outstanding and net income of $1,500. The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?
The dividend discount model assumes the value of a share of common stock is the present value of all future dividends. One year holding period Assume an investor wants to buy a stock, hold it for one year, and then sell it. The company earned $2.50 a share last year and paid a dividend of $1 a share. The company maintains a 40% payout ratio over time. Financial analysts suggest the firm will earn about $2.75 per share during the coming year and will raise its dividend to $1.10 per share. The risk free rate is 10% and the market risk premium is currently 4%. You project the sale price of this stock a year from now to be $22. ? Estimate the value of this stock. ? Would you buy this stock? Multiple holding period Assume the expected holding period is three years and you estimate the following dividend payments at the end of each year. Year 1 - $1.10 per share The Business School BUACC3701: Financial Management Year 2 - $1.20 per share Year 3 - $1/35 per share The risk free rate is 10% and…
Chapter 16 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 16 - Dividend payments In 2017, Entergy paid a regular...Ch. 16 - Dividend payments Seashore Salt Co. has surplus...Ch. 16 - Repurchases Look again at Problem 2. Assume...Ch. 16 - Repurchases An article on stock repurchase in the...Ch. 16 - Company dividend policy Here are several facts...Ch. 16 - Prob. 7PSCh. 16 - Information content of dividends What is meant by...Ch. 16 - Information content of dividends Does the good...Ch. 16 - Information content of dividends Generous dividend...Ch. 16 - Prob. 11PS
Ch. 16 - Payout policy in perfect capital markets Go back...Ch. 16 - Payout policy in perfect capital markets Go back...Ch. 16 - Payout policy in perfect capital markets Respond...Ch. 16 - Prob. 15PSCh. 16 - Repurchases and the DCF model Hors dAge...Ch. 16 - Repurchases and the DCF model Surf Turf Hotels is...Ch. 16 - Repurchases and the DCF model House of Haddock has...Ch. 16 - Repurchases and the DCF model Little Oil has 1...Ch. 16 - Repurchases and EPS Many companies use stock...Ch. 16 - Dividends and value We stated in Section 16-3 that...Ch. 16 - Payout and valuation Look back one last time at...Ch. 16 - Dividend clienteles Mr. Milquetoast admires Warren...Ch. 16 - Prob. 24PSCh. 16 - Payout and taxes Which of the following U.S....Ch. 16 - Prob. 26PSCh. 16 - Prob. 27PSCh. 16 - Prob. 28PSCh. 16 - Dividend policy and the dividend discount model...Ch. 16 - Prob. 30PS
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