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3 February, 04:17

Hodgkiss corporation is evaluating an extra dividend versus a share repurchase. in either case, $27,000 would be spent. current earnings are $2.70 per share, and the stock currently sells for $96 per share. there are 4,500 shares outstanding. ignore taxes and other imperfections. what will the company's eps and pe ratio be under the two different scenarios? (do not round intermediate calculations and round your answers to 2 decimal places,

e. g., 32.16.) extra dividend share repurchase eps $ 6 $ pe ratio

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  1. 3 February, 06:30
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    If extra dividend is given,

    Dividend per share = Net income / Number of shares outstanding

    Dividend per share = $ 27,000 / 4,500 shares

    Dividend per share = $ 6 per share

    Now. the price will reduce by $ 6 per share

    Earnings per share will be $ 2.70 per share.

    Price earnings ratio = New price / Earnings per share

    Price earnings ratio = $ 96 - $ 6 / $ 2.70 = 33.33

    If the shares were purchased from $ 27,000 -

    Number of shares purchased = $ 27,000 / $ 96 = 281.25 or 281 shares

    Total earnings = $ 2.70 X 4,500 shares = $ 12,150

    New EPS = $ 12,150 / (4500 shares - 281 shares) = $ 2.88 per share

    New Price earnings ratio = Price / Earnings per share

    New Price earnings ratio = $ 96 / $ 2.88 = 33.33
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