Identifying Incentives for Stock Repurchases
Not what you're looking for?
Keystone Enterprises just announced record 2011 EPS of $5.00, up $0.25 from last year. This is the 10th consecutive year that the company has increased its EPS, an enviable record. Unfortunately, management fears that this string of EPS increases is about to be broken. Keystone is forecasting net income for 2012 and 2013 at $10 million each year, the same level earned in 2011. The company has 2,000,000 shares of common stock outstanding, no preferred stock, and no convertible debt.
1. How many common shares does Keystone need to buy back at the beginning of 2012 and 2013 to maintain EPS growth of $0.25 per share each year? (Note: Keystone will use excess cash from operations to pay for the stock)
2. Explain why your answer to requirement 1 would change if the buy backs were to occur in the middle of each year.
3. Why do you think Keystone's management would be concerned about maintaining the company's record of EPS growth?
Purchase this Solution
Solution Summary
The expert identifies incentives for stock repurchases.
Solution Preview
See attached excel file for solution.
Identifying incentives for stock repurchases
Keystone Enterprises just announced record 2011 EPS of $5.00, up $0.25 from last year. This is the 10th consecutive year that the company has increased its EPS, an enviable record. Unfortunately, management fears that this string of EPS increases is about to be broken. Keystone is forecasting net income for 2012 and 2013 at $10 million each year, the same level earned in 2011. The company has 2,000,000 shares of common stock outstanding, no preferred stock, and no convertible debt.
1. How many common shares does Keystone need to buy back at the beginning of 2012 and 2013 to maintain EPS growth of $0.25 per share each year? ...
Purchase this Solution
Free BrainMass Quizzes
Operations Management
This quiz tests a student's knowledge about Operations Management
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.
Lean your Process
This quiz will help you understand the basic concepts of Lean.