A firm has 200 shareholders, you among them. Each shareholder owns $20 worth of stock. In addition, Mr. Hostile owns 50 shares (for a firm total of 250 shares)and is trying to fire the
Management. In an attempt to buy him off, management has offered to buy Mr. Hostile's
Shares for $28. What will the new share price be?

Question

Quizplus · Accepted Answer

Before the buyout offer, the total value of the company is:

200 shareholders * $20 per share = $4,000

After Mr. Hostile sells his shares for $28 each, the company will pay:

50 shares * $28 per share = $1,400

So the total value of the company will be:
$4,000 - $1,400 = $2,600

The new share price will be the total value of the company divided by the remaining number of shares:

$2,600 / (200 shareholders + 50 remaining shares) = $10 per share

Therefore, the best choice is D.

A Firm Has 200 Shareholders, You Among Them