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The Dunn Corporation is planning to pay dividends of ​$480000.There are 240000 shares​ outstanding, and earnings per share are​$5. The stock should sell for ​$50 after the​ ex-dividend date.​If, instead of paying a​ dividend, the firm decides to repurchase​stock,

a. What should be the repurchase​ price?

b. How many shares should be​ repurchased?

c. What if the repurchase price is set below or above yoursuggested price in part ​(a​)?

d. If you own 100​ shares, would you prefer that the company paythe dividend or repurchase​ stock?

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Nelly Stracke
Nelly StrackeLv2
28 Sep 2019
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Natsam Corporation has $325million of excess cash. The firm has no debt and $550 million shares outstanding with a current market price of $11 per share. Suppose the board decided to do a​ one-time share​ repurchase, but​ you, as an​ investor, would have preferred to receive a dividend payment. How can you leave yourself in the same position as if the board had elected to make the dividend payment​ instead?

Which of the following is true regarding the effect of a​ one-time share repurchase on the stock​ price? ​(Select the best choice​ below.)

A.An​ open-market share repurchase decreases the stock price because the​ firm's assets decline by the amount of the purchases of the shares.

B.An​ open-market share repurchase has no effect on the stock​ price, but the stock price is not the same as the​ cum-dividend price if a dividend were paid instead.

C.An​ open-market share repurchase increases the stock price due to the decrease in shares in the marketplace.

D.An​ open-market share repurchase has no effect on the stock price.

To receive your​ dividend, the percentage of your shares you should sell is___________% ​(Round to two decimal​ places.)

Natsam Corporation has $300 million of excess cash. The firm has no debt and 600 million shares outstanding with a current market price of $19 per share. Suppose the board decided to do a​ one-time share​ repurchase, but​ you, as an​ investor, would have preferred to receive a dividend payment. How can you leave yourself in the same position as if the board had elected to make the dividend payment​ instead?

Which of the following is true regarding the effect of a​ one-time share repurchase on the stock​ price? (Select the best choice)

A. An​ open-market share repurchase has no effect on the stock price.

B. An​ open-market share repurchase decreases the stock price because the​ firm's assets decline by the amount of the purchases of the shares.

C. An​ open-market share repurchase increases the stock price due to the decrease in shares in the marketplace.

D. An​ open-market share repurchase has no effect on the stock​ price, but the stock price is not the same as the​ cum-dividend price if a dividend were paid instead.

To receive your​ dividend, the percentage of your shares you should sell is ????%. (Round to two decimal places.)

The following financial data on the Bond Recording Company are​ available:

The firm is currently considering whether it should use ​$400,000 of its earnings to help pay cash dividends of ​$1.00 per share or to repurchase stock at ​$29 per share.

a. Approximately how many shares of stock can the firm repurchase at the ​$29-per-share price, using the funds that would have gone to pay the cash​ dividend?

b.  Calculate the EPS after the repurchase.

c. If the stock still sells at 14 times​ earnings, what will the market price be after the​ repurchase?

d. Compare the​ pre- and​ post-repurchase earnings per share.

e.  Compare and contrast the​ stockholders' positions under the dividend and repurchase alternatives. What are the tax implications under each​ alternative?

Earnings available for common stockholders $800,000
Number of shares of common stock outstanding 400000
Earnings per share ($800,000/400,000) $2
Market price per share $28
Price/earnings (P/E) ratio ($28/$2) 14

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