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  3. a company has the following: 1,000,000 shares out

A company has the following: 1,000,000 shares outstanding A current stock price of $25...

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Accounting

A company has the following:

  • 1,000,000 shares outstanding
  • A current stock price of $25
  • $750,000 in net income for the most recent year
  • A P/E ratio of 33.3
  • $4,000,000 of excess cash

The company anticipates constant performance in the upcoming year (that is, same net income and constant P/E). It is contemplating issuing a one-time dividend for the full amount of the excess cash, OR buying back 125,000 shares of stock at a premium price of $28 per share. You own 1,000 shares. Which of the 2 options provides the best shareholder return (provide the math support)?

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