Question

The following data apply to Hill's Hiking Equipment: Value of operations $20,000, Short-term investments $1,000, Debt $6,000, Number of shares 300; The company plans on distributing $50 million by repurchasing stock. What will the intrinsic per share stock price be immediately after the repurchase?

Answer 1

$50

Step-by-step explanation:

Solution

Recall that:

The company plans on giving out $50 million by repurchasing stock hence, number of stock to be purchased = 50/50 = 1 million

The Number of share bought back = 300-1 = 299

Thus

$20,000 + $1,000 - $6000 = $15,000

$15,000 / 300 shares = $50

Before Repurchase After the repurchase

Value of operations 20000 20000

Short-term investments 1000 950

Less : Debt 6000 6000

Intrinsic value of equity 15000 14950

Number of shares 300 299

Intrinsic value per share 50 50

Therefore the intrinsic per share stock price be immediately after the repurchase is $50