Big Industries has the following market-value balance sheet. The stock currently sells for $20 a share, and there are 1,300 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,300 worth of stock. Ignore taxes. Assets Liabilities and Equity Cash $ 8,000 Debt $ 11,500 Fixed assets 29,500 Equity 26,000 a. What will be the subsequent price per share if the firm pays a dividend? b. What will be the subsequent price per share if the firm repurchases stock? (Round your answer to the nearest dollar.) c. If total earnings of the firm are $32,300 a year, find earnings per share if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 3 decimal places.) d. If total earnings of the firm are $32,300 a year, now find earnings per share if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 3 decimal places.) e. If total earnings of the firm are $32,300 a year, find the price-earnings ratio if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 2 decimal places.) f. If total earnings of the firm are $32,300 a year, find the price-earnings ratio if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.) g. Adherents of the “dividends-are-good” school sometimes point to the fact that stocks with high dividend payout ratios tend to sell at above-average price-earnings multiples. Is Big Industries’ P/E ratio higher if it pays a dividend
Big Industries has the following market-value balance sheet. The stock currently sells for $20 a share, and there are 1,300 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,300 worth of stock. Ignore taxes.
| Assets | Liabilities and Equity | ||||||
| Cash | $ | 8,000 | Debt | $ | 11,500 | ||
| Fixed assets | 29,500 | Equity | 26,000 | ||||
a. What will be the subsequent price per share if the firm pays a dividend?
b. What will be the subsequent price per share if the firm repurchases stock? (Round your answer to the nearest dollar.)
c. If total earnings of the firm are $32,300 a year, find earnings per share if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 3 decimal places.)
d. If total earnings of the firm are $32,300 a year, now find earnings per share if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 3 decimal places.)
e. If total earnings of the firm are $32,300 a year, find the price-earnings ratio if the firm pays a dividend. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
f. If total earnings of the firm are $32,300 a year, find the price-earnings ratio if the firm repurchases stock. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
g. Adherents of the “dividends-are-good” school sometimes point to the fact that stocks with high dividend payout ratios tend to sell at above-average price-earnings multiples. Is Big Industries’ P/E ratio higher if it pays a dividend?
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