Kelso's is considering spending $80,000 on either a stock repurchase or an extra cash dividend.Which one of the following values will be the same whether the firm pays a dividend or repurchases stock? Assume there are no taxes or market imperfections.
A)Number of shares outstanding
B)Price per share
C)Earnings per share
D)Price-earnings (PE) ratio
E)Market value of equity per share

Question

Quizplus · Accepted Answer

The price-earnings (PE) ratio will remain the same whether the firm pays a dividend or repurchases stock, as both actions do not affect the earnings or the market price per share in a perfect market without taxes or imperfections.

Kelso's Is Considering Spending $80,000 on Either a Stock Repurchase