Alex, Inc Is Financed 100% with Equity

Alex, Inc. is financed 100% with equity. The firm has 100,000 shares of stock outstanding with a market price of $5 per share. Total earnings for the most recent year are $50,000. The firm has cash of $25,000 in excess of what is necessary to fund its positive NPV projects. The firm is considering using the cash to pay an extra dividend of $25,000 or, alternatively, to repurchase $25,000 of stock. The firm has other assets worth $475,000 (market value) . For each of the questions that follow, assume there are no transaction costs, taxes, or other market imperfections.

Assume the firm uses the $25,000 excess cash to buy back stock at $5 per share. What will be the firm's earnings per share after the repurchase?

A) $0.25
B) $0.39
C) $0.45
D) $0.50
E) $0.53