Question: Is it easy for managers to dramatically pump up stock prices by repurchasing shares? In what ways might managers personal interests prompt them to buy

Is it easy for managers to dramatically pump up stock prices by repurchasing shares? In what ways might managers personal interests prompt them to buy back shares?

Stock repurchase The Off-Shore Steel Company has earnings available for common stockholders of $2 million and has 500,000 shares of common stock outstanding at $60 per share. The firm is currently contemplating the payment of $2 per share in cash dividends.

a. Calculate the firms current earnings per share and price/earnings ratio.

b. If the firm can repurchase stock at $60 per share in the open market, how many shares can it buy in lieu of paying the dividend?

c. How much will the EPS be after the proposed repurchase? Why? d. Assuming a perfect market, what will the market price of the stock be after repurchase? What is the P/E ratio?

e. Compare the earnings per share before and after the proposed repurchase.

f. Compare and contrast the stockholders position under the dividend and repurchase alternatives.

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