The following data on the Bond Record Company are available: Earnings available for common stockholders $700,000 Number of shares of common stock outstanding 350,000 Earnings per share ($700,000÷350,000) $2 Market price per share $36 Price/earnings (P/E) ratio ($36÷$2) 18 The firm is currently considering whether it should use $350,000 (not included in the $$700,000 earnings listed in the financial data) of its earnings to help pay cash dividends of $1.00 per share or to repurchase stock at $36 per share. a. Approximately how many shares of stock can the firm repurchase at the $36-per-share price, using the funds that would have gone to pay the cash dividend? b. Calculate the EPS after the repurchase. c. In a perfect market, what is the stock price after the repurchase and what is the P/E ratio? d. Compare the pre- and post-repurchase earnings per share.
The following data on the Bond Record Company are available: Earnings available for common stockholders $700,000 Number of shares of common stock outstanding 350,000 Earnings per share ($700,000÷350,000) $2 Market price per share $36 Price/earnings (P/E) ratio ($36÷$2) 18 The firm is currently considering whether it should use $350,000 (not included in the $$700,000 earnings listed in the financial data) of its earnings to help pay cash dividends of $1.00 per share or to repurchase stock at $36 per share. a. Approximately how many shares of stock can the firm repurchase at the $36-per-share price, using the funds that would have gone to pay the cash dividend? b. Calculate the EPS after the repurchase. c. In a perfect market, what is the stock price after the repurchase and what is the P/E ratio? d. Compare the pre- and post-repurchase earnings per share.
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter7: Financial Activities
Section: Chapter Questions
Problem 11QE
Related questions
Question
The following data on the Bond Record Company are available:
Earnings available for common stockholders
|
$700,000
|
Number of shares of common stock outstanding
|
350,000
|
Earnings per share
($700,000÷350,000)
|
$2
|
Market price per share
|
$36
|
Price/earnings (P/E) ratio
($36÷$2)
|
18
|
The firm is currently considering whether it should use $350,000 (not included in the $$700,000 earnings listed in the financial data) of its earnings to help pay cash dividends of $1.00 per share or to repurchase stock at $36 per share.
a. Approximately how many shares of stock can the firm repurchase at the $36-per-share price, using the funds that would have gone to pay the cash dividend?
b. Calculate the EPS after the repurchase.
c. In a perfect market, what is the stock price after the repurchase and what is the P/E ratio?
d. Compare the pre- and post-repurchase earnings per share.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 5 steps
Knowledge Booster
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
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning
Financial Reporting, Financial Statement Analysis…
Finance
ISBN:
9781285190907
Author:
James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:
Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:
9781337690881
Author:
Jay Rich, Jeff Jones
Publisher:
Cengage Learning