Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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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