Flashback Corporation is evaluating an extra dividend versus a share repurchase.
ID: 2761041 • Letter: F
Question
Flashback Corporation is evaluating an extra dividend versus a share repurchase. In either case, $23,940 would be spent. Current earnings are $3.00 per share, and the stock currently sells for $93 per share. There are 4,200 shares outstanding. Ignore taxes and other imperfections.
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).)
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).)
Explanation / Answer
PE ratio =price/EPS
EPS =net income/number of shares
.95=net income/200
Net income=190
No of shares after repurchase;
5000/40=125 shares repurchase
Remaining share after repurchase=200-125=75 shares
Price per shate after repurchase is 40
But price after extra dividend is 40-25=15 pet share
Price reduced by 25 per share (5000/200) as extra dividend of 25 is pdovidede on 200 shares
Extra dividend repurchase EPS .95 190/75=2.5333 PE ratio 15/.95=15.79 times 40/2.5333=15.79 timesRelated Questions
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