Pat Morin, CFO of Morin's Fresh Groceries, has asked you to evaluate an equity transaction that the company is considering. Specifically, Pat is wondering if there would be any difference between paying an extra dividend and buying back shares. In either case, Morin's will spend $900,000. The company's most recent earnings were $1.13 per share, EBIT was $582,340, and the stock price right now is $42 per share. There are 86,000 shares outstanding. Ignore taxes and other imperfections. Pat has asked you to analyze how each of the alternatives would affect the price per share of the stock and shareholder wealth.

Answer rating: 100% (QA)

To evaluate the impact of the two alternatives paying an extra dividend and buying back shares on the price per share of the stock and shareholder wea... View the full answer