Hi i was reading this question from Schweser and could not figure out the correct answer Can someone please help ------------------------------------------------------------------------------------------------------- Nick Adams is recommending to the board of directors that they share the profits from an excellent year with shareholders by either declaring a special cash divident of 20 million or using the $20 million to repurchase shares of Volksberger common stock in the open market Selected financial informaion about the firm is shown below shares outstanding 40 million current stock price $28 52 week trading range $20 to $36.00 Book value of equity $880 million After tax cost of borrowing 5.5 % Adam drafts a memo to the board of directors detailing the financial impact of declaring a special cash dividend verses repurchasing shares/ His memo includes two statements 1) the total shareholder wealth resulting from owning one share of stock with the special divident option is $28.50, assuming the stock price doesn’t change on the announcement of the special dividend 2) our company’s P/E ratio after the share buyback will remain 20 times earning Which of the statements that Adam made in incorrect
If I remember correctly this is a garbage question…there is an errata on the schweser website that this question should be removed.