Calculate falcon price-earnings ratio before the buyback

Assignment Help Finance Basics
Reference no: EM131625059

Share buybacks are sometimes motivated by the desire to increase earnings per share. Falcon Ltd recorded an operating profit of $2 million in the last financial year. It has 4 million shares on issue and the market price of the shares is $5 each. Falcon announces that it will repurchase 10 per cent of each shareholder's shares at $5 per share.

a) Calculate Falcon's price-earnings ratio before the buyback.

b) An observer comments as follows: 'Falcon's buyback should boost its earnings per share from 50 cents to 55 cents, so with the price-earnings ratio remaining the same, the share price should increase'.

i) If the observer's argument is correct, what will Falcon's share price be after the buyback?

ii) Critically evaluate the observer's argument.

Reference no: EM131625059

Questions Cloud

How much cash was paid for inventory : Cold and Flu Corp. reported the following information for 2012 and 2013. How much cash was paid for inventory during the 2012/13 financial year
Post a brief statement that expresses your thoughts : What application (example/analysis) in the course did you think was most useful to you and your professional goals
Define simultaneous thought to be ethically reprehensible : How the idea of legal drugs can be, at the same time, so highly esteemed in today's society and simultaneous thought to be ethically reprehensible
What amount would be reported in the operating activities : What amount would be reported in the operating activities section of Online.com's statement of cash flows for collections from customers under the direct method
Calculate falcon price-earnings ratio before the buyback : i) If the observer's argument is correct, what will Falcon's share price be after the buyback?
Write about something you are familiar with : Write a draft of a 500-word Narrative Essay. Write about something you are familiar with, and do not use outside sources.
Cumulative probability of default : Your analysis suggests that the cumulative probability of default for the loan to FINCORP over those 4 years is 0.067.
Define agrichemicals and farm machinery : Cyrus runs an Agribusiness, called Modern Pastures Ltd, which specialises in retailing agrichemicals and farm machinery
Importer who owes and belgian company : A US importer who owes and Belgian company 500,000 Euros payable in 30 days from today expects that the US Dollar will weaken during this period.

Reviews

Write a Review

Finance Basics Questions & Answers

  What is the molar mass of the gas

What is the molar mass of the gas

  Annual coupon payment

Consider a 7 year bond with a face value of $1,000 and with an annual coupon payment of $100. What is the market value of this bond if the appropriate required.

  Financial plan assignment fro personal finance

The objective of this assessment is to apply the principles covered in this course to develop a written financial plan that covers your current situation and your most likely situation and needs after graduating.

  What is included in nike''s balance sheet cash account

Compute the change in NIKE's current ratio and working capital from 2008 to 2009. Which accounts are the most important in explaining that change?

  Value of the bond change

Jordan bought a 4% semi annual coupon bond with 25 years to maturity par value at $1,000. If the required rate of return (Yield to maturity) of this bond increases to 4.25%, by how much does the value of the bond change?

  What is the role of the trustee associated

What is the role of the trustee associated with a bond issue? Find the Internet site for a trust firm and provide the link for your classmates.

  What are three main approache to developing of probabilities

What are the 3 main approaches to developing of probabilities? Explain which one you might use most in a business decision-making situation? Why? Try to come up with an example if you can.

  Determine the cable tension

The circular gate ABC has a 1 m radius and is hinged at B. Neglecting atmospheric pressure, determine the force P just sufficient to keep the gate from opening when h = 12 m.

  What is the total income tax liability at the end of 2012

Assuming that no taxes were owed at the beginning of 2012 and no tax payments were made during 2012, what is the total income tax liability at the end of 2012?

  If the real risk- free rate of interest is 41 and the rate

please use approximation method to find the expected rate of return on a 1 year treasury bill.if the real risk- free

  Use this information to calculate the security beta

Fill in the following table, supplying all the missing information. Use this information to calculate the security'sbeta.

  What are some of the pros and cons of international sales

What are some of the pros and cons of international sales? How can companies protect themselves from the potential risks of international sales?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd