You are required to answer the following questions:

a) Explain why a firm might prefer a stock repurchase rather than an increase in the firm's regular dividend.

b) Company B has 6,000 shares of stock outstanding at a market price of $20 a share. The earnings per share are $1.62. The firm has total assets of $315,000 and total liabilities of $186,000. Today, the firm is repurchasing $4,800 worth of stock. Ignore taxes. What will the earnings per share be after the stock repurchase? Show your calculations.

c) Company C has 4,000 shares of stock outstanding at a price per share of $15. What will the price per share be if the firm pays a $1.30 per share dividend? Ignore taxes and market imperfections. Show your calculations.

d) Company D has 9,000 shares of stock outstanding at a market price of $14.65 per share. What will the price per share be after the firm declares a 12 percent stock dividend? Ignore taxes and market imperfections. Show your calculations.

Answer rating: 100% (QA)

a Dividends are only money paid out while stock is dividend plus the capital gain of the ... View the full answer