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Just Right Incorporated is considering the option of an extra dividend versus a share repurchase and the impact of both decisions on the firm. Just Right plans to spend $85,000 in respect of both scenarios. Just Right’s current earnings are $2.10 per share, and the stock currently sells for $45 per share. Just Right currently has 5,000 shares outstanding. You own one share of stock in this company. If the company issues the dividend, what will your total investment be worth?

Respuesta :

Answer:

The total investment will be "28".

Explanation:

The given values are:

Total dividend amount

= $85,000

Current earnings per share

= $2.10

Total purchased amount

= $85,000

Currently sell stock

= $45 per share

Now,

⇒  [tex]Dividend \ per \ share=\frac{85000}{5000}[/tex]

                                     [tex]=17[/tex]

⇒  [tex]Total \ investment=currently \ sell \ stock+dividend \ per \ share[/tex]

                                 [tex]=45+17[/tex]

                                 [tex]=62[/tex]

The number of repurchased shares will be:

=  [tex]\frac{total \ repurchase}{currently \ sells}[/tex]

=  [tex]\frac{85000}{45}[/tex]

=  [tex]1889[/tex]

So, Percentage of repurchased will be:

=  [tex]\frac{1889}{5000}[/tex]

=  [tex]37.78 \ percent[/tex]

When the share becomes bought, the overall investment value will be as follows:

=  [tex]45\times ( 1 -0.3778)[/tex]

= [tex]45\times 0.6222[/tex]

= [tex]27.999 \ or \ 28[/tex]