A firm has earnings available to common stock holders

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A firm has earnings available to common stock holders of $2 million and has 500,000 shares of common outstanding. The stock sells for $62/share. The firm is contemplating the payment of $2/share in cash dividends to its 500,000 stockholders. Mr. Lu, its CFO suggests that they should use the total amount of cash dividend and buy-back their stock thus helping its stockholders. If the firm can repurchase stock at $62/share, (a) how many shares can be purchased in lieu of making dividend payment; (b) How much will the EPS be before and after the repurchase? (c) If the P/E ratio of 15 remains the same what will be the market price after the repurchase?

Reference no: EM13811387

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