The H. M. Homes Company is primarily owned by several wealthy Texans. The firm earned $3,500,000 after

Question:

The H. M. Homes Company is primarily owned by several wealthy Texans. The firm earned $3,500,000 after taxes this year. With 1 million shares outstanding, earnings per share were $3.50. The stock recently has traded at $72 per share, among the current shareholders. Two dollars of this value is accounted for by investor anticipation of a cash dividend. As financial manager of H. M. Homes, you have contemplated the alternative of repurchasing some company by means of a tender offer at $72 per share.
a. How much could the firm repurchase if this alternative were selected?
b. Ignoring taxes, which alternative should be selected?
c. Considering taxes, which alternative should be selected?
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...