Flychucker Corporation is evaluating an extra dividend versus a share repurchase. In either case $14,000 would be spent....
Flychucker Corporation is evaluating an extra dividend versus a share repurchase. In either case $14,000 would be spent. Current earnings are $2.00 per share, and the stock currently sells for $50 per share. There are 2,000 shares outstanding. Ignore taxes and other imperfections. a. Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth per share.
| Alternative I | Extra dividend |
| Price per share | $ |
| Shareholder wealth | $ |
| Alternative II | Repurchase |
| Price per share | $ |
| Shareholder wealth |
| b. |
What will be the effect on the company’s EPS and PE ratio under the two different scenarios?
|
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