The balance sheet for Levy Corp. is shown here in market value terms. There are

Question

The balance sheet for Levy Corp. is shown here in market value terms. There are 8,000 shares of stock outstanding.

Instead of a dividend of $1.70 per share, the company has announced a share repurchase of $13,600 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.)

What will the price per share be after the repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

The balance sheet for Levy Corp. is shown here in market value terms. There are 8,000 shares of stock outstanding.

Explanation / Answer

Solution: a. Shares outstanding = 7,716.67 shares Working Notes: Intrinsic value per share = Equity / No. of shares outstanding = $384,000/8000 shares = $48 per share $13,600 worth shares were repurchased means $13,600/$48 = 283.33 shares were repurchased Therefore, No. of shares outstanding after repurchase = Outstanding shares before repurchase - No. of shares in repurchase =8000 - 283.333 =7,716.667 Shares Outstanding = 7,716.67 shares b. New stock price $48 Working Notes: New Equity value = before equity value - Repurchase value = $384,000 - $13,600 =370,400 No. of shares after repurchase = 7,716.67 shares New stock price= New Equity value / No. of shares after repurchase = 370,400/7,716.67 = 47.999999 =$48 Will be same before repurchase as both equity and no of share outstanding is proportionally reduced. Please feel free to ask if anything about above solution in comment section of the question.

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