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: (d) Compare the shareholders' positions under the dividend and repurchase alternatives.

Answer & Explanation:

Under the dividend alternative, the shareholders receive ₹ 5 per share. Given the market price of ₹ 80, their total receipts per share are ₹ 85. Under the repurchase alternative, the MPS is ₹ 85. In both cases, the effective receipts per share are identical.

Topics: Corporate Finance

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