The following financial statistics is available in respect of a listed company: Price earning (P/E) ratio 8 times Number of equity shares 4 lakh Earnings available to equity shareholders ₹ 40 lakh Earnings per share ₹ 10

CS Professional · Capital Commodity and Money Market · PYQS · December 2017
The following financial statistics is available in respect of a listed company: Price earning (P/E) ratio 8 times Number of equity shares 4 lakh Earnings available to equity shareholders ₹ 40 lakh Earnings per share ₹ 10 Market price per share ₹ 80 The company is currently considering whether it should use ₹ 20 lakh of its earnings to pay cash dividends or purchase shares at ₹ 85 per share. As a financial consultant to the company, you are expected to provide answers for the following situations: (a) How many equity shares can be repurchased, using the funds that would have been disbursed to pay cash dividend?

Answer & Explanation:

Number of shares to be repurchased = ₹ 20,00,000 / ₹ 85 = 23,529 shares.

Topics: Corporate Finance

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