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If management estimates that a stock repurchase

Question - The equity of Enterprise Holdings, Inc has a market value of $3 million. It currently has 300,000 shares outstanding, and a book value of equity of $1,095,000. An unexpected cash windfall has prompted management to consider either a special dividend of $6.00 per share or stock repurchase for cash.

a. If management estimates that a stock repurchase announcement will increase stock price by 5 percent, how many shares should they be prepared to repurchase?

b. Can you think of any reasons a share repurchase might be preferable to a special dividend?

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Accounting Basics: If management estimates that a stock repurchase

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