Problem:
Flashback Corporation is evaluating an extra dividend versus a share repurchase. In either case, $32,500 would be spent. Current earnings are $2.90 per share, and the stock currently sells for $81 per share. There are 5,000 shares outstanding. Ignore taxes and other imperfections.
Required:
Question: What will be the effect on Flashback's EPS and PE ratio under the two different scenarios?
Note: Provide support for rationale.