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In: Finance
DB, Inc. is publicly traded with a stock price of $50 per share and 200,000,000 shares...
DB, Inc. is publicly traded with a stock price of $50 per share and 200,000,000 shares outstanding. It also expects to have total net earnings of $400,000,000. DB has $200 million in surplus cash that it wants to pay to shareholders. One option is to pay a special dividend. The other option is to repurchase stock with the cash. Evaluate the two alternatives below (ignoring any information effects):
a. What is the price of the company’s stock if it announces
i. a special dividend will be paid (with all $200 million)
ii. stock will be repurchased (totaling $200 million) on the open market
b. What is the EPS of the company if it
i. pays a special dividend with all $200 million
ii. repurchases stock totaling $200 million on the open market
c. What is the P/E ratio of the company if it
i. pays a special dividend with all $200 million
ii. repurchases stock totaling $200 million on the open market
d. Give two reasons why the company should choose to pay the special dividend and two reasons why the company should repurchase the stock.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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