Repurchase versus Cash Dividend. Trantor Corporation is deciding whether to payout $300 in excess cash in the form of an extra dividend or a share repurchase. Current earnings are $1.50 per share. and the stock sells for $15. The market value balance sheet before paying out the $300 is as follows:
|
Market Value Balance Sheet (before paying out excess cash) |
|||
|
Excess cash |
$ 300 |
Debt |
$ 400 |
|
Other assets |
1,600 |
Equity |
1,500 |
|
Total |
$1,900 |
Total |
$1,900 |
Evaluate the two alternatives in terms of the effect on the price per share of the stock, the EPS, and the PE ratio.