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What is effect of the repurchase on the eps and market price

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American Development Corporation (ADC) expects to earn $4.4 million in 2009, and 50% of this amount (or $2.2 million) has been allocated for distribution to common shareholders. There are 1.1 million shares outstanding, and the market price is $20 a share. ADC believes that it can use the $2.2 million to repurchase 100,000 of its shares through a tender offer at $22 a share or pay a cash dividend of $2 a share.

Question 1: What is the effect of the repurchase on the EPS and market price per share of the remaining stock? Use the P/E ratio and assume it to remain the same.

Reference no: EM132544394

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