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    Payout Policy and Capital Structure

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    "Many companies use stock repurchases to increase earnings per share. For example, suppose that a company is in the following position:
    Net profit $10 million
    Number of shares before repurchase 1 million
    Earnings per share $10
    Price-earnings ratio 20
    Share price $200
    The company now repurchases 200,000 shares at $200 a share. The number of shares declines to 800,000 shares and earnings per share increase to $12.50. Assuming the price-earnings ratio stays at 20, the share price must rise to $250" Discuss.

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    https://brainmass.com/business/capital-structure-and-firm-value/payout-policy-capital-structure-266187

    Solution Preview

    See the attached file.

    "Many companies use stock repurchases to increase earnings per share. For example, suppose that a company is in the following position:
    Net profit $10 million
    Number of shares before repurchase 1 million
    Earnings per share $10
    Price-earnings ...

    Solution Summary

    The solution examines payout policy and capital structures. The solution examines share price rising.

    $2.19

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