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Flychucker Corporation is evaluating an extra dividend versus a share repurchase. In either case $5,500 would be spent. Curre



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Answer #1

a) If dividend is paid, EPS will be same, EPS = $0.95

Price will go down by dividend = $5,500 / 230 = $23.91, New Price = $30. - $23.91 = $6.09

New P/E = 6.09 / 0.95 = 6.4

If share repurchased, no. of shares repurchased = 5,500 / 30 = 183, new outstanding shares = 47 shares.

New stock price = 30 x 230 / 47 = $146.81

New EPS = 0.95 x 230 / 47 = $4.65

New P/E = 146.81 / 4.65 = 31.58

b) Repurchase because the stock price will go higher.

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