Harte Textiles, Inc., a maker of custom upholstery fabrics, is concerned about preserving the wealth of its
Question:
Harte Textiles, Inc., a maker of custom upholstery fabrics, is concerned about preserving the wealth of its stockholders during a cyclic downturn in the home furnishings business. The company has maintained a constant dividend payout of $2.00 tied to a target payout ratio of 40%. Management is preparing a share repurchase recommendation to present to the firm’s board of directors. The following data have been gathered from the last two years:
a. How many shares should the company have outstanding in 2012 if its earnings available for common stockholders in that year are $1,200,000 and it pays a dividend of $2.00, given that its desired payout ratio is 40%?
b. How many shares would Harte have to repurchase to have the level of shares outstanding calculated in part a?
Step by Step Answer:
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter