What will the price of the securities be

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Reference no: EM132047361

The Carlton Corporation has $6 million in earnings after taxes and 2 million shares outstanding. The stock trades at a P/E of 15. The firm has $2 million in excess cash.

a. Compute the current price of the stock. (Do not round intermediate calculations and round your answer to 2 decimal places.)

Current Price:

b. If the $2 million is used to pay dividends, how much will dividends per share be? (Do not round intermediate calculations and round your answer to 2 decimal places.)

Dividends Per Share:

c. If the $2 million is used to repurchase shares in the market at a price of $47 per share, how many shares will be acquired? (Do not round intermediate calculations and round your answer to the nearest whole share.)

Number of Shares Aquired:

d. What will the new earnings per share be? (Use the rounded number of shares computed in part c but do not round any other intermediate calculations. Round your answer to 2 decimal places.)

Earnings Per share:

e-1. If the P/E ratio remains constant, what will the price of the securities be? (Use the rounded answer from part d and round your answer to the nearest whole dollar.)

Stock Price:

e-2. By how much, in terms of dollars, did the repurchase increase the stock price? (Use the rounded whole dollar answer from part e-1. A negative value should be indicated with a minus sign. Round your answer to the nearest whole dollar.)

Stock Price Increase/ Decrease:

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

Yes

Reference no: EM132047361

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