Calculate falcon price-earnings ratio before the buyback

Assignment Help Finance Basics
Reference no: EM131625059

Share buybacks are sometimes motivated by the desire to increase earnings per share. Falcon Ltd recorded an operating profit of $2 million in the last financial year. It has 4 million shares on issue and the market price of the shares is $5 each. Falcon announces that it will repurchase 10 per cent of each shareholder's shares at $5 per share.

a) Calculate Falcon's price-earnings ratio before the buyback.

b) An observer comments as follows: 'Falcon's buyback should boost its earnings per share from 50 cents to 55 cents, so with the price-earnings ratio remaining the same, the share price should increase'.

i) If the observer's argument is correct, what will Falcon's share price be after the buyback?

ii) Critically evaluate the observer's argument.

Reference no: EM131625059

Questions Cloud

How much cash was paid for inventory : Cold and Flu Corp. reported the following information for 2012 and 2013. How much cash was paid for inventory during the 2012/13 financial year
Post a brief statement that expresses your thoughts : What application (example/analysis) in the course did you think was most useful to you and your professional goals
Define simultaneous thought to be ethically reprehensible : How the idea of legal drugs can be, at the same time, so highly esteemed in today's society and simultaneous thought to be ethically reprehensible
What amount would be reported in the operating activities : What amount would be reported in the operating activities section of Online.com's statement of cash flows for collections from customers under the direct method
Calculate falcon price-earnings ratio before the buyback : i) If the observer's argument is correct, what will Falcon's share price be after the buyback?
Write about something you are familiar with : Write a draft of a 500-word Narrative Essay. Write about something you are familiar with, and do not use outside sources.
Cumulative probability of default : Your analysis suggests that the cumulative probability of default for the loan to FINCORP over those 4 years is 0.067.
Define agrichemicals and farm machinery : Cyrus runs an Agribusiness, called Modern Pastures Ltd, which specialises in retailing agrichemicals and farm machinery
Importer who owes and belgian company : A US importer who owes and Belgian company 500,000 Euros payable in 30 days from today expects that the US Dollar will weaken during this period.

Reviews

Write a Review

Finance Basics Questions & Answers

  What is minimum estimated value of the synergistic benefit

Based on recent market information, Dunn IT is worth $560 million as an independent operation. If the merger makes economic sense for Who, what is the minimum estimated value of the synergistic benefits from the merger?

  Which category would each of the following costs fall

Sparky Ltd is a business that employs a number of electricians. The business undertakes a range of work for its customers, from replacing fuses to installing complete wiring systems in new houses. In respect of a particular job done by Sparky Ltd,..

  What is this inheritance worth to you

7 years from now, you will be inheriting $111,622. What is this inheritance worth to you today if you can earn 4 percent interest, compounded annually?

  Describe what is reported on asset side of a cash flow

Describe what would be reported on the asset side of a cash flow based balance sheet versus the asset side of an accrual accounting balance sheet.

  What is its expected price four years from today

If the required rate of return on the stock is 12 percent, what is its fair present value? If the required rate of return on the stock is 15 percent, what is its expected price four years from today?

  What are the interest payment and the origination fee

What are the interest payment and the origination fee required by the loan? What is the rate of interest charged by the bank?

  What is po

A stock has just paid a dividend and has declared an annual dividend of $2.00 to be paid one year from today.The dividend is expected to grow at a 5% annual rate. the return on equity for similar stocks is 12% what is Po?

  What is the effective annual interest rate

What is the effective annual interest rate that you are being charged by the bank? Hint: Use your financial calculator's TVM keys and solve for i.

  Keenan corporation is expected to maintain a constant 66

keenan co. is expected to maintain a constant 6.6 percent growth rate in its dividends indefinitely. if the company has

  Identifies and analyzes the most important external

complete the external environmental scan for your organization. perform an internal competitive environmental scan for

  Define the rule of thumb

Ways and reasons statistics helps to push back the domain of ignorance, prejudice, rule of thumb, arbitrary or premature decisions, traditions and dogmatism.

  What are the tax consequences of rena’s ownership

What are the tax consequences of Rena's ownership of this stock fund? Rena is in a 35% marginal tax bracket.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd