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Alpha Ltd are deciding whether to pay out 90 000 in accumulated cash in the...

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Accounting

Alpha Ltd are deciding whether to pay out 90 000 in accumulated cash in the form of an extra dividend to shareholders or embark on a share repurchase scheme. Current profits are 3.40 per share and their shares currently trade for 35.

Their abbreviated balance sheet before paying out the dividend is as follows:

Equity 350 000 Bank/Cash 130 000

Debt 120 000/470 000 Other assets 340 000/470 000

Evaluate each alternative (i.e. pay the dividend or repurchase the shares) by

1 Calculating the number of shares in issue

2 The dividends per share (only for the first alternative, i.e. pay the dividend)

3. Calculate the new share price

4. Calculate the EPS

5 Calculate the price-earnings ratio

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