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Electronic Inc

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Electronic Inc. has 750,000 shares of stock outstanding, total earnings of $6,000,000, a market price per share of $48, and pays a cash dividend of $2.0 per share. Recently the company has developed a new electronic product on computer motherboard which is more efficient. After investigating the possibility of manufacturing this new product, Electronic determined that the costs involved in building a new plant is very high. The management decided that they are unwilling to invest heavily on it; instead, they can sell the design to an outside firm. The sales of this design can earn an after- tax payment of $30 million.

1. Determine the market value, EPS, P/E ratio and dividend payout ratio of this company.
2. Suppose you are a shareholder of this company and own 30,000 shares. The company has approached you with the idea of repurchasing your shares. The company offers $50 per share to repurchase your shares instead of paying a cash dividend of $2.0 per share. Evaluate whether the remaining shareholders are better off, worse off, or the same. Assume the P/E ratio remains unchanged.
3. Suppose after the share repurchase the company decides to pay out the same total dollar amount of cash dividends. Determine the dividends per share and the dividend payout ratio of the company.