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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


Stock repurchase the following financial data on the Bond Recording Company are available . The firm is currently considering
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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

.

.

.

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

.

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

= 700,000/335,484

= $2.08654 per share

.

.

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.

.

.

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

.

Tax Implications in the hands of shareholder's :

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

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