Mini Case-Gilbert Enterprise
The firm’s stocks are undervalued. According to the dividends, growth rate, and discount rate the share price should be $43.36 which is $8.11 higher than the current market price. If the repurchase of $1Million worth of shares occurs, the company’s Return on Equity would increase. This would happen since there is less shareholder’s equity in the company due to the lower amount of shares outstanding. Currently the company’s Return on Equity is better than Standard Auto and Allied Motors but worse than Reliance Parts. The chances are that the change will not affect the company’s ranking compared to the other companies since Reliance Parts is 7.3% higher, although there will be an increase, it will most likely not be high enough to make up the large difference of 7.3%.
The company’s earnings per share would increase if the repurchase occurs as a result of the decreased amount of shares in circulation.
At the current dividend per share price of $1.20 then the dividend yield will decrease since stock prices will go up as a result of the repurchase. The new dividend yield after the repurchase will be 2.8% (1.20/43.36). The company currently has the second best dividend yield. According to the data, Reliance Parts and Allied have a worse dividend yield than Gilbert Enterprise. Standard Auto has a better dividend yield by 1.86%. If the company chose to repurchase the stock it will then have a lower dividend yield than Allied Motors as well as Standard Auto. In future years, with the dividend having a 15% growth rate over the next three years, the dividend yield will increase. The dividend yield after year one assuming that stock price remains constant at $43.36 then dividend yield will be 3.18% (1.38/43.36) which would make us second best as long as the dividend yield for the other companies remains constant. The dividend yield after the second year again assuming that the price remains constant at $43.36 then dividend yield will be 3.67% (1.59/43.36). We can conclude
The company’s earnings per share would increase if the repurchase occurs as a result of the decreased amount of shares in circulation.
At the current dividend per share price of $1.20 then the dividend yield will decrease since stock prices will go up as a result of the repurchase. The new dividend yield after the repurchase will be 2.8% (1.20/43.36). The company currently has the second best dividend yield. According to the data, Reliance Parts and Allied have a worse dividend yield than Gilbert Enterprise. Standard Auto has a better dividend yield by 1.86%. If the company chose to repurchase the stock it will then have a lower dividend yield than Allied Motors as well as Standard Auto. In future years, with the dividend having a 15% growth rate over the next three years, the dividend yield will increase. The dividend yield after year one assuming that stock price remains constant at $43.36 then dividend yield will be 3.18% (1.38/43.36) which would make us second best as long as the dividend yield for the other companies remains constant. The dividend yield after the second year again assuming that the price remains constant at $43.36 then dividend yield will be 3.67% (1.59/43.36). We can conclude