Haywood and More have a market value balance sheet as shown below.The firm currently has 5,000 shares of stock outstanding at a market price per share of $35.40.Net income is $9,500. The firm has decided to spend $8,000 and pay an extra cash dividend.What will the firm's PE ratio be after this dividend is paid,all else held constant? Ignore taxes.

Question

Haywood and More have a market value balance sheet as shown below.The firm currently has 5,000 shares of stock outstanding at a market price per share of $35.40.Net income is $9,500.  The firm has decided to spend $8,000 and pay an extra cash dividend.What will the firm's PE ratio be after this dividend is paid,all else held constant? Ignore taxes.

Quizplus · Accepted Answer

Earnings per share = $9,500/5,000 = $1.90; PE ratio = $35.40/$1.90 = 18.63.

Haywood and More Have a Market Value Balance Sheet as Shown