How many shares of stock can the firm repurchase

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Reference no: EM131456570

The following financial data on the Bond Recording Company are? available:

Earnings available for common stockholders $500,000

Number of shares of common stock outstanding 250,000

Earnings per share ($500,000/250,000) $2

Market price per share $24

Price/earnings (P/E) ratio ($24/$2) 12

The firm is currently considering whether it should use ?$350,000 of its earnings to help pay cash dividends of ?$1.40 per share or to repurchase stock at $25 per share.

a. Approximately how many shares of stock can the firm repurchase at the $25?-per-share ?price, using the funds that would have gone to pay the cash? dividend?

b. Calculate the EPS after the repurchase.

c. If the stock still sells at 12 times? earnings, what will the market price be after the? repurchase?

d. Compare the? pre- and? post-repurchase earnings per share.

e. Compare and contrast the? stockholders' positions under the dividend and repurchase alternatives. What are the tax implications under each? alternative?

Reference no: EM131456570

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