Homework Answers
Earnings Yield(E/P) = 1/[P/E] = 1 / 32 = 0.03125, or 3.125%
As the cost of capital is greater than the earnings dilution(i.e., EPS will decrease) will result from the buyback.
So, Option "b" is correct.
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Companies with excess cash often employ share repurchase plans in place of or along with cash dividends
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Companies with excess cash often employ share repurchase plans in place of or along with cash dividends
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6. Stock repurchases Companies with excess cash often employ share repurchase plans in place of or along with cash dividends. Share repurchase plans can help investors liquidate their holdings by selling their stock to the issuing company and earning from capital gains. Consider the case of St. Sebastian Company: St. Sebastian Company has forecasted a net income of $5,300,000 for this year. Its common stock currently trades at $21 per share, and the company currently has 830,000 shares of common...
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