The balance sheet for Pie Crust, Inc., is shown here in market value terms. Ther

Question

The balance sheet for Pie Crust, Inc., is shown here in market value terms. There are 15,000 shares of stock outstanding Market Value Balance Sheet 470,000 Equity S610,000 Total Cash Fixed assets $140,000 610,000 Total $610,000 In lieu of a dividend of $1.20, the company has announced it is going to repurchase $18,000 worth of stock instead of paying a dividend Requirement 1: What effect will this transaction have on the equity of the firm? (Do not round intermediate calculations. Input the amount as positive value.) Will reduce shareholders' equity by $ Requirement 2: How many shares will be outstanding after the repurchase? (Do not round intermediate calculations Round your answer to the nearest whole number (e.g., 32).) New shares outstanding 14557 Requirement 3: What will the price per share be after the repurchase? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Share price Requirement 4: Is the share repurchase effectively the same as a cash dividend? Yes

Explanation / Answer

Requirement - 1

Will REDUCE equity by $ 18000

Requirement - 2

14557.................. is correct

Fair price of the share = 610,000 / 15000 shares = 40.67

No of share repurchased = 18000 / 40.67 = 443 shares

So outstanding after repurchase = 15000 - 443 = 14557

Requirement - 3

Price per share remains same = ( 610,000 - 18000) / 14557 = 40.67

Requirement - 4

Yes

Because, effect on equity is going to be same for cash dividend and repurchase.

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