A company has the following: 1,000,000 shares outstanding A current stock price of $25 $750,000 in net income for the most recent year A P/E ratio of 33.3 $4,000,000 of excess cash The company anticipates constant performance in the upcoming year (that is, same net income and constant P/E). It is contemplating issuing a one-time dividend for the full amount of the excess cash OR buying back 125,000 shares of stock at a premium price of $28 per share. You own 1,000 shares. Which of the 2 options provides the best shareholder return (provide the math support)?
A company has the following: 1,000,000 shares outstanding A current stock price of $25 $750,000 in net income for the most recent year A P/E ratio of 33.3 $4,000,000 of excess cash The company anticipates constant performance in the upcoming year (that is, same net income and constant P/E). It is contemplating issuing a one-time dividend for the full amount of the excess cash OR buying back 125,000 shares of stock at a premium price of $28 per share. You own 1,000 shares. Which of the 2 options provides the best shareholder return (provide the math support)?
Chapter2: The Domestic And International Financial Marketplace
Section: Chapter Questions
Problem 6P
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A company has the following:
1,000,000 shares outstanding
A current stock price of $25
$750,000 in net income for the most recent year
A P/E ratio of 33.3
$4,000,000 of excess cash
The company anticipates constant performance in the upcoming year (that is, same net income and constant P/E). It is contemplating issuing a one-time dividend for the full amount of the excess cash OR buying back 125,000 shares of stock at a premium price of $28 per share. You own 1,000 shares. Which of the 2 options provides the best shareholder return (provide the math support)?
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