A Company Wants to Pay $30,000 to its Shareholders

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Shareholders

A company wants to pay $30,000 to its shareholders. It can do this either by a special dividend or a share repurchase. The current stock price is $46 a share and current earnings are $2.75 a share. There are 2700 shares outstanding. Assume that there are no taxes.

            a.    If the company pays the special dividend, what will be the new stock price?

            b,   What will be the price-earnings ratio after the dividend?

            c.    If the company does the repurchase, how many shares will it buy?

            d.   If the company repurchases shares, what will be the new stock price?

            e.    Which way will the stockholder be better off and why?

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