The following financial data are available for magna, Ask an Expert

Finance

The following financial data are available for Magna Ltd:

Earnings available for common stockholders $500,000

Number of common stock outstanding 500,000

Earnings per share (EPS) $1.00

Market price per share $10.00

Price/earnings (P/E) ratio 10

The firm is currently contemplating using $200,000 of its earnings to either pay cash dividends or to buy back shares at $10.40 per share.

A. Approximately how many shares can the firm repurchase at the $10.40 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 share still sells at 10 times earnings, how much will the market price per share be after the repurchase?

D. Ignoring the possible tax implications, briefly compare the financial benefit to shareholders under the dividend and repurchase alternatives.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92087578

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