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18.2 Repurchase versus Cash Dividend Gothic 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:

Market Value Balance Sheet (before paying out excess cash)

Excess cash

$ 500

Debt

$ 500

Other assets

2,500

Equity

2,500

Total

$3,000

Total

$3,000

Evaluate the two alternatives in terms of the effect on the price per share of the stock, the EPS, and the PE ratio.

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