XYZ Co. has 1 million shares outstanding and $5 million in earnings after taxes. The...
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Accounting
XYZ Co. has 1 million shares outstanding and $5 million in earnings after taxes. The stock trades at a P/E of 10. XYZ Co. has $4 million in excess cash. Determine the following.
- What is the current price of the stock?
- If the $4 million is used to pay dividends, how much will dividends per share be?
- If the $4 million is used to repurchase shares in the market at a premium price of $54 per share, how many shares will be reacquired? (Round to the nearest share.)
- What will the new EPS be?
- If the P/E remains constant, what will the new price of the securities be? By how much, in terms of dollars, did the repurchase increase the share price?
- Has the shareholder's total wealth changed as a result of the stock repurchase as opposed to the cash dividend?
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