Evenglade Corp has 1,000 shares outstanding priced at $10 a share.The company is unsure whether to pay out $1 a share as a dividend or to use the money to repurchase stock.If it pays a dividend,what happens to the stock price? If it repurchases,how many shares will remain and at what price?

Question

Quizplus · Accepted Answer

If Evenglade pays a $1 dividend per share, the total amount paid out will be $1,000 (1,000 shares x $1 per share). This will decrease the total value of the company by $1,000, resulting in a new stock price of $9 per share ($9 x 1,000 shares = $9,000, the new total value of the company).
If Evenglade repurchases stock instead of paying a dividend, the number of shares remaining will depend on the price at which the repurchase occurs. If the company buys back shares at $10 per share, it can afford to repurchase 100 shares (100 shares x $10 per share = $1,000). This will leave 900 shares outstanding (1,000 original shares - 100 repurchased shares = 900 remaining shares) and the share price will remain at $10 ($10 x 900 shares = $9,000, the total value of the company). Therefore, the best choice is C.

Evenglade Corp Has 1,000 Shares Outstanding Priced at $10 a Share.The