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What is the price of the company stock

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Question - DB, Inc. is publicly traded with a stock price of $60 per share and 200,000,000 shares outstanding. It also expects to have earnings of $200,000,000. DB has $1 billion in surplus cash that it wants to pay to shareholders. One option is to pay a special dividend.

The other option is to repurchase stock with the cash. Evaluate the two alternatives below (ignoring any information effects):

a. What is the price of the company's stock if it announces

i. a special dividend will paid (with all $1 billion).

ii. stock will be repurchased (totaling $1 billion) on the open market.

b. What is the EPS of the company if it

i. pays a special dividend with all $1 billion.

ii. repurchases stock totaling $1 billion on the open market.

c. What is the P/E ratio of the company if it

i. pays a special dividend with all $1 billion

ii. repurchases stock totaling $1 billion on the open market

d. Give two reasons why the company should choose to pay the special dividend and two reasons why the company should repurchase the stock.

Reference no: EM132183921

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