Problem $17-12$ Stock Repurchase $[$LO$4]$ Problem $17-12$ Stock Repurchase $[$LO$4]$

Erna Corporation is evaluating an extra dividend versus a share

repurchase. In either case, $$10,000$ would be spent. Current earnings

are $$1\mathrm{.}90$ per share, and the stock currently sells for $$50$ per share.

There are $4,000$ shares outstanding. Ignore taxes and other

imperfections.

a$.$ Evaluate the two alternatives in terms of the effect on the price per

share of the stock and shareholder wealth per share. $($Do not round

intermediate calculations and round your answers to $2$ decimal

places, e$.$g$.,32\mathrm{.}16.)$

b$.$ What will the company's EPS and PE ratio be under the two different

scenarios? $($Do not round intermediate calculations and round

your answers to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)\begin{array}{cc}a.\text{E}\text{x}\text{t}\text{r}\text{a}\text{d}\text{i}\text{v}\text{i}\text{d}\text{e}\text{n}\text{d}& \text{P}\text{r}\text{i}\text{c}\text{e}\text{p}\text{e}\text{r}\text{s}\text{h}\text{a}\text{r}\text{e}\\ \text{S}\text{h}\text{a}\text{r}\text{e}\text{h}\text{o}\text{l}\text{d}\text{e}\text{r}\text{w}\text{e}\text{a}\text{l}\text{t}\text{h}& a.\text{R}\text{e}\text{p}\text{u}\text{r}\text{c}\text{h}\text{a}\text{s}\text{e}\\ \text{P}\text{r}\text{i}\text{c}\text{e}\text{p}\text{e}\text{r}\text{s}\text{h}\text{a}\text{r}\text{e}& \text{S}\text{h}\text{a}\text{r}\text{e}\text{h}\text{o}\text{l}\text{d}\text{e}\text{r}\text{w}\text{e}\text{a}\text{l}\text{t}\text{h}\\ b.\text{E}\text{x}\text{t}\text{r}\text{a}\text{d}\text{i}\text{v}\text{i}\text{d}\text{e}\text{n}\text{d}& \text{E}\text{P}\text{S}\\ PE\text{r}\text{a}\text{t}\text{i}\text{o}& b.\text{R}\text{e}\text{p}\text{u}\text{r}\text{c}\text{h}\text{a}\text{s}\text{e}\\ \text{E}\text{P}\text{S}& PE\text{r}\text{a}\text{t}\text{i}\text{o}\end{array}$

Erna Corporation is evaluating an extra dividend versus a share

repurchase. In either case, $$10,000$ would be spent. Current earnings

are $$1\mathrm{.}90$ per share, and the stock currently sells for $$50$ per share.

There are $4,000$ shares outstanding. Ignore taxes and other

imperfections.

a$.$ Evaluate the two alternatives in terms of the effect on the price per

share of the stock and shareholder wealth per share. $($Do not round

intermediate calculations and round your answers to $2$ decimal

places, e$.$g$.,32\mathrm{.}16.)$

b$.$ What will the company's EPS and PE ratio be under the two different

scenarios? $($Do not round intermediate calculations and round

your answers to $2$ decimal places, e$.$g$.,32\mathrm{.}16.)$