ABC Co. is evaluating an extra dividend versus a share repurchase. In either case, $5,000...
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ABC Co. is evaluating an extra dividend versus a share repurchase. In either case, $5,000 would be spent. Current earnings are $0.95 per share (EPS), and the stock currently sells for $40 per share. There are 200 shares outstanding. Ignore taxes and other imperfections in answering 1) and 2).
- Evaluate the two alternatives in terms of the effect on the price per share of the stock and stockholder wealth.
- What will be the effect on the companys EPS and P/E ratio under the two different scenarios?
- In the real world, which of these actions would you recommend? Why?
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