Flemington farms is evaluating an extra dividend versus a share repurchase. in either case, $15,000 would be spent. current earnings are $2.80 per share, and the stock currently sells for $75 per share. there are 2,800 shares outstanding. ignore taxes and other imperfections. the pe ratio will be if the firm issues the dividend as compared to if the firm does the share repurchase. a) 24.87; 24.87b) 24.87; 26.79c) 26.79; 24.87d) 26.79; 26.79e) 26.79; 27.13

correct option is a) 24.87; 24.87

Explanation:

given data

spent = $15000

current earnings = $2.80 per share

stock currently sells = $75 per share

shares outstanding = 2,800

top find out

PE ratio

solution

first we get here dividend per share that is express as

dividend per share =   ................1

dividend per share =

dividend per share = $5.3571

and price after dividend will be here as

price after dividend = stock currently sells - dividend per share    ............2

price after dividend = $75 - $5.3571

price after dividend = $69.6429

so  PE ratio will be

PE ratio is =

PE ratio is = 24.87

and

now we get share  repurchased  that is

shares repurchased =    .......3

shares repurchased =      

shares repurchased = 200      

so EPS will be  as

EPS is = 2.80 ×

EPS = 3.015  

so PE ratio will be as

PE ratio is  =

PE ratio is = 24.87

correct option is a) 24.87; 24.87

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