If total earnings of the firm are $2,000 a year, find earnings per share if the firm pays a dividend. Now find earnings per share if the firm repurchases stock. Find the price-earnings ratio if the firm pays a dividend. Find the price-earnings ratio if the firm repurchases stock.
If total earnings of the firm are $2,000 a year, find earnings per share if the firm pays a dividend. Now find earnings per share if the firm repurchases stock. Find the price-earnings ratio if the firm pays a dividend. Find the price-earnings ratio if the firm repurchases stock.
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 13P
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Question
Big Industries has the following market-value
Assets |
|
Liabilities and Equity |
|
Cash |
$ 2,000 |
Debt |
$10,000 |
Fixed assets |
28,000 |
Equity |
20,000 |
- If total earnings of the firm are $2,000 a year, find earnings per share if the firm pays a dividend.
- Now find earnings per share if the firm repurchases stock.
- Find the price-earnings ratio if the firm pays a dividend.
- Find the price-earnings ratio if the firm repurchases stock.
- Adherents of the “dividends-are-good” school sometimes point to the fact that stocks with high dividend payout ratios tend to sell at above-average price-earnings multiples. Is Big Industries’ P/E ratio higher if it pays a dividend?
- Looking back at your answers to parts (a) to (f), do you think that the difference in P/E supports the “dividends-are-good” c
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