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Compute the current price of the stock

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Question - The Carlton Corporation has $6 million in earnings after taxes and 3 million shares outstanding. The stock trades at a P/E of 20. The firm has $3 million in excess cash.

a. Compute the current price of the stock.

b. If the $3 million is used to pay dividends, how much will dividends per share be?

c. If the $3 million is used to repurchase shares in the market at a price of $43 per share, how many shares will be acquired?

d. What will the new earnings per share be?

e-1. If the P/E ratio remains constant, what will the price of the securities be?

e-2. By how much, in terms of dollars, did the repurchase increase the stock price?

f. Has the stockholders' total wealth changed as a result of the stock repurchase as opposed to receiving the cash dividend?

Reference no: EM132618642

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