Chapter 17, Problem 12QP

a)

Summary Introduction

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

Introduction:

Share repurchase: R Corporation that buys its own stock through the exchange of cash is termed as stock repurchase. It is known as the buyback of shares.

Cash dividend: Cash dividend is the distribution of a portion of company’s earnings to the shareholders.

b)

Summary Introduction

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

c)

Summary Introduction

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