Parnell Bolts Inc. has 20 million common shares outstanding and net income of $30 million. The stock sells at a P/E of 15. The company has $5 million available to pay the next quarterly dividend, but is considering a repurchase instead.
a. If Parnell pays the cash dividend, what will be its dividend yield on an annualized basis?
b. How many shares will be redeemed if the repurchase option is chosen and the stock is acquired at market value?