Question

Startup Pipe has a market value equal to its book value. Currently, the company has excess cash of $14,652, other assets of $152,900, and equity valued at $144,300. There are 6,500 shares of stock outstanding and net income is $18,000. What will the new earnings per share be if the firm decides to use 50 percent of its excess cash to complete a stock repurchase

Answer 1

New EPS will be equal to $2.92

Step-by-step explanation:

It is given equity = $144300

Stock outstanding = 6500

Excess cash of the company = $14652

Net income =$18000

It is given company decides to use 50% of its excess cash to complete stock purchase.

Price per share will be equal to
`=(equity)/(stock\ outstanding)`

`=(144300)/(6500)=22.20` $

Number of shares repurchased =
`=(excess\ cash \ to \ complete\ a \ stock\ purchase.)/(price\ per\ share)`

`=(14652* 0.5)/(22.20)=330\ shares`

New EPS =
`(net\ income)/(share)`

`=(18000)/(6500-330)=2.92`

So new EPS will be equal to $2.92