A firm has $300 million of assets that includes $50 million of cash and 10 million shares outstanding.If the firm uses $30 million of its cash to repurchase shares,what is the new price per share?

Question

Quizplus · Accepted Answer

Before the share repurchase, the firm's market value was:
Market Value = $300 million = 10 million shares * Price per share
Price per share = $30
After the share repurchase, the cash and shares outstanding are as follows:
Cash = $50 million - $30 million = $20 million
Shares outstanding = 10 million - (30 million / $30) = 9 million
The new market value is:
Market Value = Assets = $300 million - $30 million = $270 million
New price per share = $270 million / 9 million shares = $30

A Firm Has $300 Million of Assets That Includes $50