A company expects to earn Rs.4.4 million in 2022, and 50% of this amount or Rs.2.2 million has been allocated for distribution to common shareholders. There are 1.1 million shares outstanding and the market price is Rs.20 a share. The company believes it can either use Rs.2.2 million to repurchase 100,000 shares through a tender offer at Rs.22 a share or else pay a cash dividend of Rs.2 a share. How does this affects EPS, P/E and expected market price?

A company expects to earn Rs.4.4 million in 2022, and 50% of this amount or Rs.2.2 million has been allocated for distribution to common shareholders. There are 1.1 million shares outstanding and the market price is Rs.20 a share. The company believes it can either use Rs.2.2 million to repurchase 100,000 shares through a tender offer at Rs.22 a share or else pay a cash dividend of Rs.2 a share. How does this affects EPS, P/E and expected market price?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 9MC

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