Flychucker Corporation is evaluating an extra dividend versus a share repurchase
ID: 2745388 • Letter: F
Question
Flychucker Corporation is evaluating an extra dividend versus a share repurchase. In either case $18,000 would be spent. Current earnings are $2.00 per share, and the stock currently sells for $50 per share. There are 4,000 shares outstanding. Ignore taxes and other imperfections.
Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth per share. (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
What will be the effect on Flychucker’s EPS and PE ratio under the two different scenarios? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))
Flychucker Corporation is evaluating an extra dividend versus a share repurchase. In either case $18,000 would be spent. Current earnings are $2.00 per share, and the stock currently sells for $50 per share. There are 4,000 shares outstanding. Ignore taxes and other imperfections.
Explanation / Answer
a)
b) The effect on Flychucker’s EPS and PE ratio under the two different scenarios:-
Altenative I Extra Dividend Price Per Share 50 - (18000 / 4000) = 50 - 4.5 = $ 45.50 Shareholder Wealth $ 50