1. Based on the information presented in Figures 1, 2, and 3, do you think that a change in the dividend policy will be necessary in 2016?
2. Regardless of your answer to question 1, assume that the firm has $30 million in funds that it is considering using for the repurchase of shares in the marketplace. The firm is currently trading at a low P/E ratio of 7 times 2015 earnings of $1.06 per share. The shares will be purchased in the open market and no premium will be paid over current price (as is sometimes the case). How many shares will be repurchased? (Round the final answer to the nearest whole number).
3. With the number of shares repurchased, what will be the recomputed value for 2015 earnings per share? (Round to two places to the right of the decimal point).
4. Assume the increased demand for the stock as a result of the share repurchase drives the P/E ratio up to 10, what will be the new stock price based on the earnings per share you computed in question 3?
5. Assume that Robert Osborne decides to use 50,000 of his stock options to purchase shares of common stock and he resells them in the market at the price you computed in question 4. What will his total before tax gain be?
6. What do you think the stock market’s reaction will be to Robert Osborne exercising 50,000 of his options?