The following data apply to Grullon-Ikenberry Inc. (GII): The company is in a mature industry. Therefore, it plans to distribute all of its income at year-end, and its earnings are not expected to grow. The CFO is now deciding whether to distribute income to stockholders as dividends or to use the funds to repurchase common stock. She believes the P/E ratio will not be affected by a repurchase. Moreover, she believes that the stock can be repurchased at the end of the year at the then-current price, which is expected to be the now-current price plus the dividend that would otherwise be received at year-end. Disregarding any possible tax effects, how much would a stockholder who owns 100 shares gain if the firm used its net income to repurchase stock rather than for dividends?

Question

The following data apply to Grullon-Ikenberry Inc. (GII):  The company is in a mature industry. Therefore, it plans to distribute all of its income at year-end, and its earnings are not expected to grow. The CFO is now deciding whether to distribute income to stockholders as dividends or to use the funds to repurchase common stock. She believes the P/E ratio will not be affected by a repurchase. Moreover, she believes that the stock can be repurchased at the end of the year at the then-current price, which is expected to be the now-current price plus the dividend that would otherwise be received at year-end. Disregarding any possible tax effects, how much would a stockholder who owns 100 shares gain if the firm used its net income to repurchase stock rather than for dividends?

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The Answer of The following data apply to Grullon-Ikenberry Inc. (GII):  The company is in a mature industry. Therefore, it plans to distribute all of its income at year-end, and its earnings are not expected to grow. The CFO is now deciding whether to distribute income to stockholders as dividends or to use the funds to repurchase common stock. She believes the P/E ratio will not be affected by a repurchase. Moreover, she believes that the stock can be repurchased at the end of the year at the then-current price, which is expected to be the now-current price plus the dividend that would otherwise be received at year-end. Disregarding any possible tax effects, how much would a stockholder who owns 100 shares gain if the firm used its net income to repurchase stock rather than for dividends?

The Following Data Apply to Grullon-Ikenberry Inc