A firm is worth $5 million, and you own 500 shares worth a total of $5,000. If the firm repurchases $1 million of its shares for their fair market value, what will the value of your
Shares then be?

Question

Quizplus · Accepted Answer

The value of your shares remains $5,000 because a share repurchase at fair market value does not affect the value of the remaining shares. The firm's value decreases by the amount of the repurchase, but your proportionate ownership in the firm increases, leaving the value of your investment unchanged.

A Firm Is Worth $5 Million, and You Own 500