Answer:
A. 22.38; 22.38
Explanation:
Calculation to determine what The PE ratio will be____ if the firm issues the dividend as compared to ____ if the firm does the share repurchase
Calculation to determine PE ratio If the firm issues the dividend:
First step is to calculate the Dividends per share
Dividends per share = $10,000/2,000 shares
Dividends per share= $5.00
Now let calculate the P/E
P/E = ($52-5.00)/$2.10
P/E = 22.38
Calculation to determine the P/E If the firm does the share repurchase:
First step is to calculate the Shares repurchased
Shares repurchased = $10,000/$52
Shares repurchased = 192.31
Second step is to calculate the EPS after repurchase
EPS after repurchase = ($2.10 ×2,000) /(2,000 -192.31)
EPS after repurchase= $2.3234
Now let calculate the P/E
P/E= $52 / $2.3234
P/E= 22.38
Therefore The PE ratio will be 22.38 if the firm issues the dividend as compared to 22.38 if the firm does the share repurchase
