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    Nov 26, 2007, 04:21 PM
    Is this Correct Dividends vs. Repurchase
    Big Industries has the following market-value balance sheet.
    The stock currently sells for $20 a share, and there are 1,000 shares outstanding. The firm will either pay a $1 per share dividend or repurchase $1,000 worth of stock. Ignore taxes.

    a. What will be the price per share under each alternative (dividend versus repurchase)?

    DIVIDEND

    Assets Liabilities
    Cash 2,000 Debt 10,000
    Assets 28,000 Equity 20,000
    value 30,000 Value 30,000

    Shares outstanding= 1000
    price per share = 30,000/1000
    price per share = 30


    REPURCHASE

    Assets Liabilities
    Cash 2,000 Debt 10,000
    Assets 28,000 Equity 20,000
    value 30,000 Value 30,000

    Shares Outstanding = 900
    Price per share = 30,000 / 900
    Price per share 33

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