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, 517,150 would be spent. Current earnings are $3.20 per share, and the stock currently sells for $86 per share. There are 3,500 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).) In the real world, which of these actions would you recommend?

Explanation / Answer

EPS            3.2                    3.39

PE Ratio     25.34                 25.35

Extra Dividend Share repurchase $ $ Current Earning per share 3.2 3.2 Extra Dividend 4.9 Share repurchase              199 (17150/86) Earning        11,200 New EPS 3.2             3.39 market price per share- revised 81.1 market price per share 86 86 PE Ratio               25.34           25.35

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