Flashback Corporation is evaluating an extra dividend versus a share repurchase.

Question

Flashback Corporation is evaluating an extra dividend versus a share repurchase. In either case, $18,000 would be spent. Current earnings are $3.30 per share, and the stock currently sells for $87 per share. There are 3,600 shares outstanding. Ignore taxes and other imperfections. Requirement 1: What will Flashback’s EPS and PE ratio be under the two different scenarios? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Extra Dividend Share Repurchase EPS $ $ PE Ratio Requirement 2: In the real world, which of these actions would you recommend? (Click to select)Share repurchaseExtra dividend

Explanation / Answer

Solution.

Calculation of EPS and P/E ratio.

EPS = $3.30

P/ E ratio = $87 / $3.30 = 26.36%

2. In the real world, which of these actions would you recommend

Share repurchase

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