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Dunn Corporation - Repurchase of stock

The Dunn Corporation is planning to pay dividends of $500,000. There are 250,000 shares outstanding, and earnings per share are $5. The stock should sell for $50 after the ex-dividend date. If, instead of paying a dividend, the firm decides to repurchase stock,

a. What should be the repurchase price?
b. How many shares should be repurchased?
c. What if the repurchase price is set below or above your suggested price in part a?
d. If you own 100 shares, would you prefer that the company pay the dividend or repurchase stock?

Solution Preview

The Dunn Corporation is planning to pay dividends of $500, 000. There are 250,000 shares outstanding, and earnings per share are $5. The stock should sell for $50 after the ex-dividend date. If, instead of paying a dividend, the firm decides to repurchase stock,

a. What should be the repurchase price?

Number of shares outstanding= 250,000
Ex dividend price= $50.00
Therefore ex dividend value of shares= $12,500,000 =$50. x 250,000.
Amount of ...

Solution Summary

The repurchase price and the number of shares to be repurchased are calculated.

$2.19