MGMW 501 - Dell - d 1341M/91M ~ $14.75 e Dell paid $26.80...

Info icon This preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
1. Dell’s stock price skyrocketed after its IPO; splitting the stocks lowered the share price and increased liquidity. Stock splits do not change the value of equity or assets, which means shareholder equity ratios (total shareholder equity/total assets) and profitability ratios like return on equity (net income/shareholder's equity) and return on assets (net income/total assets) are unchanged. Stock splits do change par value and increase the number of shares, so earnings per share (net income/average shares outstanding) decreases. 2. Companies typically buy back stock when they believe the stock is undervalued. Dell most likely bought back stock to return more cash to its shareholders and to mitigate the share dilution that results from its employee stock plan. 3. a. Dell bought back 65M shares during fiscal 2001 b. 2700/65 = $41.54 c. Dell issued 91M shares under their employee plan during fiscal year 2001
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: d. 1341M/91M ~ $14.75 e. Dell paid $26.80 more per share than its employees did under the employee purchase program ($41.54 v. $14.75) 4. Total Assets are reduced by $2.7 billion Share repurchases increase return on equity and decrease leverage: o Return on shareholders’ equity before repurchase: 2177/(5622+2700) = 26.16% o Return on shareholders’ equity after repurchase: 2177/5622 = 38.72% o Leverage Ratio before repurchase: 7813/5622 = 1.39 o Leverage Ratio after repurchase: 7813/(5622+2700) = 0.94 5. a. Dell accounted for their share buybacks as retirement; also there is no mention of Treasury Stock in the Stockholder's Equity report. b. Treasury stock can be reissued and neither affects net income nor results in any accounting gains/losses, while retired shares cannot be reissued....
View Full Document

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern