Iron Corporation is evaluating an extra dividend versus a share repurchase. In either case, $11,008 would be
Question:
Iron Corporation is evaluating an extra dividend versus a share repurchase. In either case, $11,008 would be spent. Current earnings are $4.50 per share, and the stock currently sells for $89 per share. There are 4,300 shares outstanding. Ignore taxes and other imperfections in answering the first two questions.
a. Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth.
b. What will be the effect on the company’s EPS and PE ratio under the two different scenarios?
c. In the real world, which of these actions would you recommend? Why?
Step by Step Answer:
a The two alternatives in terms are Extra dividend The dividend payment is 13 per share Since there are 4300 shares outstanding this will leave 52200 ...View the full answer
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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