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:

Share repurchase:

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:

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).

c)

Summary Introduction

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