In: Finance
**Please answer with full steps, thank you so much!
A firm is debating whether or not to conduct a share repurchase or pay a special dividend with $2,000,000 cash. | |||||||||||||||||||||
Current EPS is $3.00 per share, and the 500,000 shares outstanding currently sell for $40 each. | |||||||||||||||||||||
You own exactly 1,000 shares. | |||||||||||||||||||||
a) If the firm makes the special dividend payment, what will your total wealth be? | |||||||||||||||||||||
b) If the firm repurchases shares, how many shares will be repurchased, and what will your total wealth be? | |||||||||||||||||||||
c) If the firm makes the special dividend payment, what will the P/E ratio be? | |||||||||||||||||||||
d) If the firm repurchases shares, what will the new EPS be? | |||||||||||||||||||||
e) If the firm repurchases shares, what will the new P/E ratio be? | |||||||||||||||||||||
f) From your perspective as an investor, would your prefer a special dividend or a share repurchase? Why? |