Chapter 14, Problem 12QP

a)

Summary Introduction

To determine: The effects of share repurchase and cash dividend on the price per share of the stock and shareholders’ wealth.

Introduction:

A company that buys its own stock through the exchange of cash is termed as a stock repurchase. It is like the buyback of shares.

Cash dividend is the dividend which is payable to the shareholders on distribution of certain amount of company’s earnings

b)

Summary Introduction

To determine: The effects on the company’s EPS (Earnings per Share) and PE ratio (Price Earnings ratio)

Introduction:

A company that buys its own stock through the exchange of cash is termed as a stock repurchase. It is like the buyback of shares.

Cash dividend is the dividend which is payable to the shareholders on distribution of certain amount of company’s earnings

c)

Summary Introduction

To discuss: Whether the share repurchase or cash dividend is recommended.

Introduction:

A company that buys its own stock through the exchange of cash is termed as a stock repurchase. It is like the buyback of shares.

Cash dividend is the dividend which is payable to the shareholders on distribution of certain amount of company’s earnings