Answer:
a. 19,048
b. 2.1
c. $21
d. Before $2
After $2.1
e. Explanation of tax implication is below
Explanation:
a. Number of shares = Dividend per share × Number of shares outstanding ÷ cost per share
= 1 × 400,000 ÷ $21
= 19,048
b. Earning per share after repurchase = earnings ÷ (shares before-shares outstanding)
= $800,000 ÷ (400,000-19,048)
= 2.1
c. Market Price = Earning per share Price × Earning
= 2.1 × 10
= $21
d. Earning per share before = Earnings ÷ Before shares
= $800,000 ÷ 400,000
= $2
Earning per share after repurchase = $2.1
After share repurchase the earning per share has increased.
e) Price increased 21 dollars in share repurchased. The price remain constant in dividend payout the amount but additional 1 dollar in dividend the investors gains. If dividend is lesser than tax on capital gain then it will become drawback over collect dividend and vice versa.
