Question

A firm has a total market value of assets of $300 that includes $40 million of cash and 12 million shares outstanding. If the firm uses $30 million of its cash to repurchase shares, what is the new price per share

Answer 1

Answer: $25.00

Step-by-step explanation:

Original share price:

= Value of assets / Shares outstanding

= 300 million/ 12 million

= $25.00

Company uses $30 million to buy shares which means that it buys:

= 30 million / 25

= 1,200,000 shares

New value of assets:

= 300 million - 30 million cash used

= $270 million

New price per share:

= 270 million / (12,000,000 - 1,200,000 shares)

= 270 million / 10,800,000

= $25.00