Question

# Stock repurchase  The following financial data on the Bond Recording Company are​ available: Earnings available for...

Stock repurchase  The following financial data on the Bond Recording Company are​ available:

 Earnings available for common stockholders \$900,000 Number of shares of common stock outstanding 450000 Earnings per share (\$900,000/450,000) \$2 Market price per share \$24 Price/earnings (P/E) ratio (\$24/\$2) 12

The firm is currently considering whether it should use \$450,000 of its earnings to help pay cash dividends of \$1.00 per share or to repurchase stock at \$25 per share.

a. Approximately how many shares of stock can the firm repurchase at the ​\$25-per-share ​price, using the funds that would have gone to pay the cash​ dividend?

b. Calculate the EPS after the repurchase.

c. If the stock still sells at 12 times​ earnings, what will the market price be after the​ repurchase?

d. Compare the​ pre- and​ post-repurchase earnings per share.

e. Compare and contrast the​ stockholders' positions under the dividend and repurchase alternatives. What are the tax implications under each​ alternative?

Given,

Earnings available for common stockholders = \$900000

Shares outstanding = 450000 shares

P/E ratio = 12

Cash dividends = \$450000

Repurchase price = \$25

Solution :-

#### Earn Coins

Coins can be redeemed for fabulous gifts.