A corporation purchases 1,000 shares of their outstanding common stock. What effect will the sharebuyback have on the earnings per share of the corporation?Earnings per share will increase because there will be less shares outstandingO Earnings per share will decrease because there will be less shares outstandingO Earnings per share will decrease because there will be more shares outstandingO Earnings per share will increase because there will be more shares outstanding

Treasury stock is that stock or shares which are being repurchased or reacquired by the business…

Answered: A corporation purchases 1,000 shares of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A firm has 7,000 outstanding shares with current value of 10£ per share. Planned dividend is £5 per share. What is the ex-dividend share price? How much is the share price if the company decides to use the cash it had originally earmarked for dividend for a share repurchase instead? A. £5, £10 B. £10, £5 C. £8, £10 D. £2, £12 ( explain well with step by step answer ).
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Which would increase a firm's return on equity? A. Issuance of 12% bonds and investing the proceeds to earn more than 12%. B. Increasing the size of cash dividends to shareholders. C. Increase in the firm's price earnings ratio D. Increase in market price of the firm's ordinary share E. none of the above
Iron Corporation is evaluating an extra dividend versus a share repurchase. In either case, $18,000 would be spent. Current earnings are $2.00 per share, and the stock currently sells for $50 per share. There are 4,000 shares outstanding. Ignore taxes and other imperfections. a. Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth per share. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What will the company's EPS and PE ratio be under the two different scenarios? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a. Price per share Shareholder wealth b. EPS PE ratio Extra dividend Repurchase
Let us suppose, a company has 1 million outstanding shares of stock, each valued at 25$. Let us also suppose that the replacement cost of its physical capital stock is 18 million $. a. Should this firm invest in more physical capital?b. Would your answer in part (a) change, if the replacement cost of its physical capital stock changes to 28 million $?
Vijay
In the above example, suppose the firm had paid $80 per share when buying back shares with its $100 in cash. (Assume that the firm can buy back fractional shares.) In this and the following two questions, fill in the blanks in the table below. Cash Other assets Total market value of stock Shares Share price Do not use $ sign. Answer to nearest whole number. The missing value for a is: Before buyback $100 $400 $500 10 $50 After buyback 0 $400 a b C
Ab. 127.
1. Discuss the implication of share Buybacks and Stock Options on the value of a company? 2. Discuss what recommendations you would have for a company like Bed, Bath, & Beyond, who spent 100's of millions of dollars on Share buybacks, which resulted them going bankrupt.
Ewing Corporation is evaluating an extra dividend versus a share repurchase. In either case, $10,000 would be spent. Current earnings are $3 per share, and the stock currently sells for $50 per share. There are 5,000 shares outstanding. Ignore taxes and other market imperfections (e.g. transaction cost) in answering the questions. a) Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth. b) What will be the effect on Ewing’s EPS and PE ratio under the two different scenarios?
1. The net proceeds per share are equal to the price per share of preferred stock minus flotation cost per share of newly issued ____.2. XYZ sells new shares for $25/share but incurs transaction costs of $5/share. Assume that the investor's required rate of return is 15% for each $25 share, the cost of capital is ___.3. ABC sells new shares for $55/share but incurs transaction costs of $5/share. Assume that the investor's required rate of return is 20% for each $55 share, the cost of capital is ___. 4. Since firms must pay flotation costs when they sell bonds, the net proceeds per bond received by the firm is less than the ____ of the bond.5. The firm's cost of capital is sometimes referred to as the firm's ______ of capital. 6. The ________ is equal to the quantity of after-tax cost of debt multiplied by the proportion of debt financing plus the quantity of cost equity multiplied by the proportion of equity financing.7. The price of a share of preferred stock is equal to _____ divided…
(b) The company is also considering offering additional common shares in the market. However Insignia is concerned about whether its stock is fairly valued on the market. As such, its Finance Manager has undertaken an exercise to determine the current price of its common shares based on the following anticipated dividend payout structure: V Insignia's last dividend paid was $4.20. V The company intends to increase the dividend by 10%, 15% and 20% respectively over the next three (3) years. V Thereafter, the company is expected to increase dividends by an annual rate of 2%. The company continues to assume a required return of 12%. Required: Given the above, what should be the current price of Insignia's common shares?

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