Hodgkiss Corporation is evaluating an extra dividend versus a share repurchase.

Q: Hodgkiss Corporation is evaluating an extra dividend versus a share repurchase.

solution= extra dividend eps = EPS will remain the same = $2.90 P/E ratio = 81/2.90 = 27.93 share repurchase Number of shares repurchased = 32,500/81 = approx 401 shares shares outsatnding will be = 5000- 401 = 4599 shares EPS = (5000 * 2.90)/4599 =$ 3.15 PE ratio = 81/3.15 = 25.71

ID: 3365436 • Letter: H

Question

Hodgkiss Corporation is evaluating an extra dividend versus a share repurchase. In either case, $32,500 would be spent. Current earnings are $2.90 per share, and the stock currently sells for $81 per share. There are 5,000 shares outstanding. Ignore taxes and other imperfections.

What will the company’s EPS and PE ratio be under the two different scenarios? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

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Extra Dividend Share Repurchase EPS $ $ PE Ratio

Explanation / Answer

solution=

extra dividend

eps = EPS will remain the same = $2.90

P/E ratio = 81/2.90 = 27.93

share repurchase

Number of shares repurchased = 32,500/81 = approx 401 shares

shares outsatnding will be = 5000- 401 = 4599 shares

EPS = (5000 * 2.90)/4599 =$ 3.15

PE ratio = 81/3.15 = 25.71

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Hodgkiss Corporation is evaluating an extra dividend versus a share repurchase.

Hoding all other factors constant, an appreciation of the US $ versus all other

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Hodgkiss Corporation is evaluating an extra dividend versus a share repurchase.

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