The market value of the equity is $1,500. The price per share is $15, so there are 100 shares outstanding. The cash dividend would amount to $3001100 = $3 per share. When the stock goes ex dividend, the price will drop by $3 per share to $I2. Put another way, the total assets decrease by 5300, so the equity value goes down by this amount 10 $1,200. With 100 shares, the new stock price is $12 per share. After the dividend, EPS will be the same, S I.50, but the PE ratio will be $12/1.50 ~ 8 times.
With a repurchase, 5300115 = 20 shares will be bought up, leaving 80. The equity will again be worth $1.200 total. With 80 shares, this is $1,200/80 = $15 per share. so the price doesn’t change. Total earnings for Trantor must be $1.50 X 100 = $150. After the repurchase, EPS will be higher at $150/80 = $1.875. The PE ratio. however, will still be $15/1.875 = 8 times.