Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question

4

The Belton Corporation has $7 million in eamings after taxes and 2 million shares outstanding. The stock trades at a PE of 20. The
firm has $3 million in excess cash.
a. Compute the curret price of the stock.
Current price
70
b. If the $3 million is used to pay dividends, how much will dividends per share be?
Dividends per share
1.50
C.If the $3 million is used to repurchase shares In the market at a premlum price of $71.5 per share, how many shares will be
reacquired? (Round the final answer to the nearest whole number.)
Number of shares acquired
41950
d. What will the new EPS be? (Round intermediate calculations and final answer to 2 decimal places.)
Earnings per share
3.57
e-1. If the PE remalns constant, what will the new price of the securities be? (Do not round Intermediate calculations. Round your
answer to 2 decimal places.)
Price of securitles
714
e-2 By how much, In terms of dollars, did the repurchase change the share price?
The stock price has ncreased
by $
f. Has the shareholder's total wealth changed as a result of the stock repurchase as opposed to the cash dividend?
O Yes
O No
9. From the shareholder's perspective, Is there any major tax advantage to tendering one's shares versus the receipt of cash
dividends?
O Yes
O No
Need the answers for F and G please
Transcribed Image Text:The Belton Corporation has $7 million in eamings after taxes and 2 million shares outstanding. The stock trades at a PE of 20. The firm has $3 million in excess cash. a. Compute the curret price of the stock. Current price 70 b. If the $3 million is used to pay dividends, how much will dividends per share be? Dividends per share 1.50 C.If the $3 million is used to repurchase shares In the market at a premlum price of $71.5 per share, how many shares will be reacquired? (Round the final answer to the nearest whole number.) Number of shares acquired 41950 d. What will the new EPS be? (Round intermediate calculations and final answer to 2 decimal places.) Earnings per share 3.57 e-1. If the PE remalns constant, what will the new price of the securities be? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Price of securitles 714 e-2 By how much, In terms of dollars, did the repurchase change the share price? The stock price has ncreased by $ f. Has the shareholder's total wealth changed as a result of the stock repurchase as opposed to the cash dividend? O Yes O No 9. From the shareholder's perspective, Is there any major tax advantage to tendering one's shares versus the receipt of cash dividends? O Yes O No Need the answers for F and G please
Expert Solution
steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Market Efficiency
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education