Question

Please answer all parts A, B, C, D, E. Thank you!

Stock repurchase the following financial data on the Bond Recording Company are available . The firm is currently considering whether it should use $450.000 of its camins to help pay cash dividends of $129 per share or to repurchase lock at $31 per share Approximately how many shares of stock can the firm purchase the $31-per-share pricing the Bundesha w a ve gone to pay the cash dividend? b. Calculate the EPS Wher the repurchase c. the stock 15 times earings, what will the market price bewer the purchase? d. Compare the pre- and post-repurchase amings per share .. Compare and contrast the stockholders' postions under the dividend and repurchase tomatives. What are the implications under each alternative? a. The number of shares Bond can repurchase is (Round down to the nearest whole number) 0 Data Table (Click on the icon located on the top right comer of the datatable below in order to copy contents into a spreadsheet.) $700.000 350.000 Earnings available for common stockholders Number of shares of common stock outstanding Earnings per share (5700,000 - 350,000) Market price per share Price amings (PE) to $30$2) Print Done Enter your answer in the answer box and then click Check Answer

Answer 1

Part-a:

No of shares of stock that firm can repurchase at the $31 price per share , using the funds that would have gone to pay the cash dividend = 450,000/31

= $14,516.13 shares

= $14,516 shares

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Part-b:

No. of shares outstanding after share repurchase = 350,000 – 14,516 = 335,484 shares

EPS after the repurchase = Earnings available for Common Stockholders after share repurchase = $700,000

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EPS after the share repurchase = EPS after the repurchase/ No. of shares outstanding after share repurchase

= 700,000/335,484

= $2.08654 per share

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Part-c:

If the stock still sells at 15 times earnings, market price after share repurchase will be = EPS after the share repurchase*P/E Ratio

= 2.08654*15

= $31 per share.

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Part-d:

Pre and Post repurchase earnings per share:

Company's Financials	Before the share repurchase	After the share repurchase
Net Income ($)	700,000	700,000
Shares Outstanding	350,000	335,484
EPS($)	2	2.08654

Part-e:

Shareholder’s Position before and after share repurchase:

Company's Financials		Before the share repurchase	After the share repurchase
Net Income ($)	{1}	700,000	700,000
Shares Outstanding	{2}	350,000	335,484
EPS($)	{3} = {1}/{2}	2	2.08654
P/E Ratio	{4}	15	15
Price per Share ($)	{5} = {3}*{4}	30	31
Market Capitalization ($)	{6} = {2}*{5}	10,500,000	10,500,000

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Tax Implications in the hands of shareholder's :

Capital gains shall arise in the hand of shareholder's on share repurchase.