Effect on the price per share and on shareholder wealth

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Reference no: EM131949249

Mustang Ltd. Is evaluating an i) extra dividend, and ii) a share repurchase. In either case, $13,325 would be spent. Current earnings are $4.25 per share, and the share sells for $116. There are 5125 shares outstanding. Ignore taxes and other transaction fees and charges in answering the following questions. REQUIRED a. Evaluate the two alternatives [i) and ii)] in terms of the effect on the price per share and on shareholder wealth. b. What will be the effect on Mustang’s earnings per share EPS and the price-earnings ratio under the two different scenarios [i) and ii)]? c. In the real world, which of these two actions [i) or ii)] would you not recommend? Why? d. “A company’s dividend policy is not as important as its capital structure policy.” Discuss.

Reference no: EM131949249

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