shares
Question
25)The Carlton Corporation has $5 million in earnings after taxes and 2 million shares outstanding. The
stock trades at a P/E of 10. The firm has $5 million in excess cash.
| a. | Compute the current price of the stock. (Do not round intermediate calculations and round your answer to 2 decimal places.) |
| Current price | $ |
| b. | If the $5 million is used to pay dividends, how much will dividends per share be? (Do not round intermediate calculations and round your answer to 2 decimal places.) |
| Dividends per share | $ |
| c. | If the $5 million is used to repurchase shares in the market at a price of $30 per share, how many shares will be acquired? (Do not round intermediate calculations and round your answer to the nearest whole share.) |
| Number of shares acquired | shares |
| d. | What will the new earnings per share be? (Use the rounded number of shares computed in part c but do not round any other intermediate calculations. Round your answer to 2 decimal places.) |
| Earnings per share | $ |
| e-1. | If the P/E ratio remains constant, what will the price of the securities be? (Use the rounded answer from part d and round your answer to the nearest whole dollar.) |
| Stock price | $ |
| e-2. | By how much, in terms of dollars, did the repurchase increase the stock price? (Use the rounded whole dollar answer from part e-1. A negative value should be indicated with a minus sign. Round your answer to the nearest whole dollar.) |
| Stock price increase / decrease | $ |
| f. | Has the stockholders’ total wealth changed as a result of the stock repurchase as opposed to receiving the cash dividend? |
| Yes |
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