The following financial data are available for Magna Ltd:
42. The following financial data are available for Magna Ltd:
Earnings available for common stockholders Number of common stock outstanding Earnings per share (EPS)
Market price per share
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$500,000 500,000 $1.00 $10.00 10
The firm is currently contemplating using $200,000 of its earnings to either pay cash dividends or to buy back shares at $10.40 per share.
Required:
- Approximately how many shares can the firm repurchase at the $10.40 per share price using the funds that would have gone to pay the cash dividend? [1 mark]
- Calculate the EPS after the repurchase. [2 marks]
- If the share still sells at 10 times earnings, how much will be the market
- price per share after the repurchase? [1 mark]
- Ignoring the possible tax implications, briefly compare the financial benefit to shareholders under the dividend and repurchase alternatives.