Per part a regarding the cash dividend the

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Chapter 12 / Exercise 032
Intermediate Financial Management
Brigham/Daves
Expert Verified
Per part a regarding the cash dividend, the stockholder's equity value decreases as the cash divi However, according to part b it is apparent that the stock dividend does not affect the value of t
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Chapter 12 / Exercise 032
Intermediate Financial Management
Brigham/Daves
Expert Verified
\$ 0.10 \$ 0.20 \$ 100,000.00 ### \$ 400,000.00 ### \$ 200,000.00 ### \$ 280,000.00 \$ 240,000.00 \$ 980,000.00 \$ 940,000.00 10% 20% \$ 100,000.00 ### \$ 440,000.00 \$ 480,000.00 \$ 320,000.00 \$ 440,000.00 \$ 160,000.00 0 \$ 1,020,000.00 ### idend increases. the stockholder's equity amount.
Stock repurchase The following financial data on the Bond Recording Company are available: Earnings available for common stockholders \$ 800,000.00 Number of shares of common stock outstanding 400,000 Earnings per share (\$800,000 / 400,000) \$ 2.00 Market price per share \$ 20.00 Price/earnings (P/E) ratio (\$20 / \$2) 10 The firm is currently considering whether it should use \$400,000 of its earnings to pay cash dividends of \$1 per share or to repurchase stock at \$21 per share. a. Approximately how many shares of stock can the firm repurchase at the \$21-per share price, using the funds that would have gone to pay the cash dividend?
b. Calculate the EPS after the repurchase. Explain your calculations.
c. If the stock still sells at 10 times earnings, what will the market price be after the repurchase?
d. Compare the pre- and postrepurchase earnings per share.
e. Compare and contrast the stockholders’ positions under the dividend and repurchase alternatives. What are the tax implications under each alternative?
nd payout when the repurchase of the stocks occur. r the higher rate of marginal ordinary income rate.