The Featherstone Crop. has $5 million in cash for its next dividend but is consi

Question

The Featherstone Crop. has $5 million in cash for its next dividend but is considering a repurchase instead. Featherstone has 10 million shares outstanding, currently selling at $40 per share. The P/E is 20 on EPS of $2. If the dividend is paid, how large will it be per share? Round the answer to two decimal places. $. per share If stock is repurchased, how many shares will remain outstanding? Round the answer to two nearest whole. Enter you number of shares in whole numbers. For example, an answer of 1.2 million should be entered as 1,200,000, not 1.2. shares If the stock is repurchased, what will the new EPS be? Round the answer to two decimal places. $ per share If the P/E holds at 20, what will be the new stock price? Round the answer to two decimal places. $ per share If the P/E holds at 20, how much per share will continuing stockholders have gained? Round the answer to two decimal places. $ per share

Explanation / Answer

a)   Dividend per share = $ 5 mio/10 mio = $ 0.50 per share b) Stock Repurchase = $ 5 mio /$ 40 per Share = 125000 share or 0.125 mio shares Stock outstanding after repurchase = 10000000-125000= 9875000 NEW EPS = (10 mio X 2 )/9.875 mio = $ 2.02 per share c) New price per share if PE is 20 New price per share = $ 2.02 X 20 = $ 40.4 per share Gain to shareholder = $ 40.4 -$ 40 = $ 0.40 per share

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