Repurchase versus Cash Dividend. Ambers Corporation is deciding whether to pay out $500 in excess cash in the form of an extra dividend or a share repurchase. Current earnings are $2.50 per share, and the stock sells for $25. The market value balance sheet before paying out the $500 is as follows:
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Market Value Balance Sheet
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(before paying excess cash)
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Excess cash
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$500
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Debt
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$500
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Other assets
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2,500
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Equity
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2,500
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Total
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$3,000
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Total
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$3,000
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Evaluate the two alternatives in terms of the effect on the price per share of the stock, the EPS, and the PE ratio.