Stock repurchase Harte Textiles, Inc., a maker of custom upholstery fabrics, is concerned about preserving the wealth of its stockholders during a cyclic down- turn in the home furnishings business. The company has maintained a constant dividend payout of $2.00 tied to a target payout ratio of 40%. Management is preparing a share repurchase recommendation to present to the firm❝s board of directors. The following data have been gathered from the last two years: 2014 2015 Earnings available for common stockholders $1,260,000 $1,200,000 Number of shares outstanding 300,000 300,000 Earnings per share $4.20 $4.00 Market price per share $23.50 $20.00 Price/earnings ratio 5.6 5.0 a. How many shares should the company have outstanding in order to combine the earnings available for common stockholders of $1,200,000 in the year 2003 and a dividend of $2.00 to produce the desired payout ratio of 40%? b. How many shares would Harte have to repurchase to have the level of shares outstanding calculated in part a?
Stock repurchase Harte Textiles, Inc., a maker of custom upholstery fabrics, is concerned about preserving the wealth of its stockholders during a cyclic down- turn in the home furnishings business. The company has maintained a constant dividend payout of $2.00 tied to a target payout ratio of 40%. Management is preparing a share repurchase recommendation to present to the firm❝s board of directors. The following data have been gathered from the last two years: 2014 2015
Earnings available for common stockholders $1,260,000 $1,200,000
Number of shares outstanding 300,000 300,000
Earnings per share $4.20 $4.00
Market price per share $23.50 $20.00
Price/earnings ratio 5.6 5.0
a. How many shares should the company have outstanding in order to combine the earnings available for common stockholders of $1,200,000 in the year 2003 and a dividend of $2.00 to produce the desired payout ratio of 40%?
b. How many shares would Harte have to repurchase to have the level of shares outstanding calculated in part a?
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