https://gpatargeter.com/wp-content/uploads/2021/07/logo.png 0 0 https://gpatargeter.com/wp-content/uploads/2021/07/logo.png 2022-05-13 14:39:082022-05-13 14:39:08The following financial data are available for Magna Ltd:
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
Price/earnings (P/E) ratio
$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.
- 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.