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: (e) In case share repurchase price is higher than ₹ 85, which category of shareholders - those who have sold their shares or those who have not - are financially better off?

Answer & Explanation:

If the repurchase price is more than ₹ 85, those who have sold the shares will be financially better off. It can be computed also: P = (Nc x MPSC) / (Nc - RS) = (400000 x ₹ 80) / (400000 - 23,529) = ₹ 320 lakh / 3,76,471 Shares = ₹ 85 per share.

Topics: Corporate Finance

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