Question

Assume a firm has a market value equal to its book value, excess cash of $900, other assets of $16,500, and equity valued at $17,400. The firm has 1,200 shares of stock outstanding and net income of $15,400. If the firm spends all of its excess cash on share repurchases, how many shares will be outstanding after the repurchases are completed

Answer 1

Answer: 1138 shares

Step-by-step explanation:

The number of shares that will be outstanding after the repurchases are completed will be calculated below:

First, we calculate the price per share which will be:

= $17,400/1200

= $14.5

Then, the number of shares repurchased will be:

= $900 / $14.5

= 62

Shares outstanding after repurchase will be:

= 1200 - 62

= 1138 shares