The following data on the Bond Record Company are available: Earnings available for common stockholders $700,000 Number of shares of common stock outstanding 350,000 Earnings per share ($700,000÷350,000) $2 Market price per share $36 Price/earnings (P/E) ratio ($36÷$2) 18 The firm is currently considering whether it should use $350,000 (not included in the $$700,000 earnings listed in the financial data) of its earnings to help pay cash dividends of $1.00 per share or to repurchase stock at $36 per share. a. Approximately how many shares of stock can the firm repurchase at the $36-per-share price, using the funds that would have gone to pay the cash dividend? b. Calculate the EPS after the repurchase. c. In a perfect market, what is the stock price after the repurchase and what is the P/E ratio? d. Compare the pre- and post-repurchase earnings per share.
The following data on the Bond Record Company are available: Earnings available for common stockholders $700,000 Number of shares of common stock outstanding 350,000 Earnings per share ($700,000÷350,000) $2 Market price per share $36 Price/earnings (P/E) ratio ($36÷$2) 18 The firm is currently considering whether it should use $350,000 (not included in the $$700,000 earnings listed in the financial data) of its earnings to help pay cash dividends of $1.00 per share or to repurchase stock at $36 per share. a. Approximately how many shares of stock can the firm repurchase at the $36-per-share price, using the funds that would have gone to pay the cash dividend? b. Calculate the EPS after the repurchase. c. In a perfect market, what is the stock price after the repurchase and what is the P/E ratio? d. Compare the pre- and post-repurchase earnings per share.
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter7: Financial Activities
Section: Chapter Questions
Problem 11QE
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Question
The following data on the Bond Record Company are available:
|
Earnings available for common stockholders
|
$700,000
|
|
Number of shares of common stock outstanding
|
350,000
|
|
Earnings per share
($700,000÷350,000)
|
$2
|
|
Market price per share
|
$36
|
|
Price/earnings (P/E) ratio
($36÷$2)
|
18
|
The firm is currently considering whether it should use $350,000 (not included in the $$700,000 earnings listed in the financial data) of its earnings to help pay cash dividends of $1.00 per share or to repurchase stock at $36 per share.
a. Approximately how many shares of stock can the firm repurchase at the $36-per-share price, using the funds that would have gone to pay the cash dividend?
b. Calculate the EPS after the repurchase.
c. In a perfect market, what is the stock price after the repurchase and what is the P/E ratio?
d. Compare the pre- and post-repurchase earnings per share.
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