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 $34
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 $34
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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
|
$34
|
| Price/earnings (P/E) ratio ($34÷$2) |
17
|
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 $34 per share.
a. Approximately how many shares of stock can the firm repurchase at the $34-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?
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