Stock Repurchase A firm has 20 million shares outstanding with a market price of
ID: 2629554 • Letter: S
Question
Stock Repurchase A firm has 20 million shares outstanding with a market price of $25 per share. The firm has $10 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt. What is the firm's value of operations after the repurchase? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
How many shares will remain after the repurchase? Round your answer to the nearest whole number
Explanation / Answer
Firms Total market capitalisation (20*25 )(i.e net asset of firm) $500 million Less : Extra cash used for repurchase $10 million Firms Total market capitalisation after repurchase(i.e net asset of firm after repurchase ) $490 million (Firm value after repurchase) (A )Total shares repurchase in value $(i.e. equal to cash) $10 million (B) Market price per share $25 (A)/(B) 0.4 million Total share before repurchase 20 million Shares repurchase 0.4 million Total share after repurchase 19.6 million
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