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    Share repurchase vs cash dividend

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    Cash $25,000
    Fixed Assets $190,000
    ---------------------------
    Total $215,000

    Equity $215,000

    5,000 shares of stock outstanding with a declared dividend of $1.20 per share.

    What if the company whats to repurchase $6,000 worth of stock?
    What effect will this transaction have on the equity of the company?
    How many shares will be outstanding?
    What will the new price per share be?
    Show how the share repurchase is effectively the same as a cash dividend.

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    https://brainmass.com/business/dividends-stock-repurchase-and-policy/share-repurchase-vs-cash-dividend-256241

    Solution Preview

    Dear student,

    Answer is attached.

    Share Repurchase
    Cash $25,000
    Fixed Assets $190,000
    ---------------------------
    Total $215,000

    Equity $215,000

    5,000 shares of stock outstanding with a delcared divident of $1.20 per share.  

    What if the company whats to repurchse $6,000 worth of stock?  
    What effect will this transaction have on the equity of the company?  
    How many shares will be ...

    Solution Summary

    The solution proves that share repurchase and declaration of cash dividend has the same effect on the equity of the company.

    $2.19

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