Reference no: EM13703292
4. Amarillo's Best Company (ABC) has released the following information.
earnings available to common stockholders $5,000,000
Number of shares of common stock outstanding 1,000,000
Market price per share $50
Retained earnings 11,600,000
(a) What are ABC's current earnings per share?
(b) What is ABC's current P/E ratio?
(c) ABC wants to use half of its earnings either to pay shareholders dividends or to repurchase shares for inclusion in the firm's employee stock ownership plan. If the firm pays a cash dividend, what will be the dividend per share received by existing shareholders?
(d) Instead of paying the cash dividend, what if the firm uses half of its earnings to pay $55 per share to repurchase the shares, what will be the firm's new EPS? What should be the firm's new share price?
(e) Compare the impact of a stock dividend and stock repurchase on shareholder wealth
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