The Dunn Corporation is planning to pay dividends of $540.000. There are 270,000

Question

The Dunn Corporation is planning to pay dividends of $540.000. There are 270,000 shares outstanding and earnings per share are $5. The stock should sell for $51 after the ex-dividend date. If, instead of paying a dividend, the firm decides to repurchase stock. a. What should be the repurchase price? b. How many shares should be repurchased? c. What if the repurchase price is set below or above your suggested price in part (a)? d. If you own 100 shares, would you prefer that the company pay the dividend or repurchase stock?

Explanation / Answer

a.

Proposed dividend = $540,000

Shares outstanding = 270,000 shares

Proposed dividend per share = $540,000/270,000 shares = $2 per share

Ex-Dividend price per share = $51 per share

Repurchase price per share = Ex-dividend price + Proposed dividend = $51 + $2 = $53 per share

b.

Amount to be spent for repurchase = Proposed dividend = $540,000

Shares to be repurchased = $540,000/$53 = 10,189 shares

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.