The balance sheet for Levy Corp. is shown here in market value terms. There are
ID: 2731676 • Letter: T
Question
The balance sheet for Levy Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.
.Market Value Balance Sheet
Cash $ 44,300 Equity $ 414,300
Fixed assets 370,000
Total 414,300 Total 414,300
Instead of a dividend of $1.60 per share, the company has announced a share repurchase of $8,000 worth of stock.
How many shares will be outstanding after the repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places. (e.g., 32.16))
Current stock price $ per share
Ignoring any tax effects, what will it sell for tomorrow? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
New stock price $ per share
Ignoring any tax effects, what will the balance sheet look like after the dividends are paid? (Do not round intermediate calculations.)
Market Value Balance Sheet
Cash $ price here Equity $ price here
Fixed assets price here Total $ price here
Explanation / Answer
a) Today’s Stock Price = $414,300/5,000 = $82.86
Number of Shares to be purchased = $8,000/$82.86 = 96.55 or 97
Total number of shares outstanding after repurchase = 5,000 – 97 = 4,903
b) New Price of Stock = ($414,300 - $8,000) / 4,903 = $82.86
(Note: When a company uses its profit to repurchase shares, share prices are not impacted)
c)
Cash
$36,300
Equity
$406,300
Fixed Assets
$370,000
Total
$406,300
Total
$406,300
Cash = $44,300 - $8,000 = $36,300
Fixed Assets = $370,000
Total = Cash + Fixed Assets => $36,300 + $370,000 = $406,300
Cash
$36,300
Equity
$406,300
Fixed Assets
$370,000
Total
$406,300
Total
$406,300
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