ed 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.)

Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter15: Capital Structure Decisions
Section: Chapter Questions
Problem 11P: The Rivoli Company has no debt outstanding, and its financial position is given by the following...
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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.)
Transcribed Image Text:ed 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.)
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