a) 11.00 b) 10.00 c) 15.00 d) 14.00 e) 12.00 5. Stock repurchases Overholser Inc
ID: 2634773 • Letter: A
Question
a) 11.00
b) 10.00
c) 15.00
d) 14.00
e) 12.00
5. Stock repurchases Overholser Inc. has forecast net income of $8,000,000 over the next year. Overholser also forecasts a capital budget of $8,000,000 for the year. If the Vim, maintains its capital budget of 50% equity and 50% debt, how much of a dividend can Overholser pay if it follows a strict residual dividend policy? $6,000,000 $5,000,000 $8,000,000 $4,000,000 $7,000,000 Instead of paying a cash dividend, Overholser is considering a stock repurchase. The firm currently has 1,500,000 shares of common stock outstanding that have a current market price of $80 per share. If Overholser carries out the repurchase, it expects to be able to buy the stock at its current market price. What is Overholsers current price-to-earnings (P/E) ratio?Explanation / Answer
1.Dividend as per Residual Dividend Policy=Income*proportion of equity=8000000*0.5=4000000
2.P/E Ratio= (No of Common Stocks*Market Price)/Earning=(1500000*80)/8000000=15
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