Question

A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,360 and other assets of $6,640. Equity is worth $8,000. The firm has 500 shares of stock outstanding. The firm has decided to spend all of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?

Answer 1

Share Outstanding after stock repurchase = 415 Shares

Step-by-step explanation:

given data

cash = $1,360

other assets = $6,640

Equity = $8,000

stock outstanding = 500 shares

to find out

How many shares of stock will be outstanding after the stock repurchase is completed

solution

first we find the book value per share

Book value per share = Value of Common Equity ÷ Total Shares Outstanding ..............................1

put here value

Book value per share =
`(8000)/(500)`

Book value per share = $16

so

Share can purchased with the excess cash =
`(1360)/(16)`

Share can purchased with the excess cash = 85 shares

so Share Outstanding after stock repurchase = 500 - 85

Share Outstanding after stock repurchase = 415 Shares