Built Rite Corp

question 17

Multiple Choice

Built Rite Corp. is evaluating an extra dividend versus a share repurchase. In either case, $7,500 would be spent. Current earnings are $1.24 per share, and the stock currently sells for $32 per share. There are 5,000 shares outstanding. Ignore taxes and other imperfections. You own one share of stock in this company. If the company issues the dividend, your total investment will be worth ________ as compared to ________ if the company opts for a share repurchase.

• A) $30.50; $30.50
• B) $27.50; $32.00
• C) $27.50; $30.50
• D) $27.50; $27.50
• E) $32.00; $32.00

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Definitions:

Operating Income

Income generated from the normal business operations of a company, excluding expenses such as interest and taxes.

DuPont Formula

A formula that breaks down Return on Equity (ROE) into three components: profit margin, asset turnover, and financial leverage, to analyze a company's financial performance.

Profit Margin

Profit margin is a financial metric showing the percentage of revenue that remains as profit after all operating expenses are deducted from sales.

Investment Turnover

A ratio that measures the efficiency of a company’s use of its assets in generating sales or revenue; the ratio of net sales to average total assets.