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Problem:

Company B's market-value balance sheet is presented below. There are 1,000 shares outstanding, and each share currently sells for $20. Earnings available for common shareholders are $2000 per year. The firm will either pay a $1 per share dividend or repurchase $1000 worth of stock.

Requirement:

Question 1: Calculate the price per share and price-earnings ratio under each alternative.

Question 2: Briefly discuss why a company might prefer either a cash dividend or a stock repurchase.

Assets:- Cash : $2000, Other assets: $28,000
Liabilites and equit:- DEbt $10,000 Equity: $20,000

Note: Show supporting computations in good form.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91167168

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