The balance sheet for Ferguson Corp. is shown here in market value terms. There
ID: 2758982 • Letter: T
Question
The balance sheet for Ferguson Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.
Instead of a dividend of $2.00 per share, the company has announced a share repurchase of $10,000 worth of stock.
How many shares will be outstanding after the repurchase? (Do not round intermediate calculations. Round your final answer to 2 decimal places, e.g., 32.16.)
What will the price per share be after the repurchase? (Do not round intermediate calculations. Round your final answer to 2 decimal places, e.g., 32.16.)
The balance sheet for Ferguson Corp. is shown here in market value terms. There are 5,000 shares of stock outstanding.
Explanation / Answer
82.86
The buyback of the stock has no effect on the balance sheet since both the sides get balanced after the buyback is complete. However, the share price mostly increases because of the effect of the price/earnings multiple on the EPS of the share. The number of shares come down and the earnings remain the same thereby taking the EPS figure upwards and hence the price of the stock rises as well. Since that information is missing here the new stock price as the calculation from the balance sheet have come out same.
Market value of the shares $ 82.86 (414300/5000) No of shares in $10,000 $ 120.69 Remaining shares after buyback 4,879 Price per share after the repurchase $82.86
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