A firm has $75 million of assets that includes $12 million of cash and 25 million shares outstanding.If the firm uses $12 million of cash to repurchase shares,what is the new price per share?

Question

Quizplus · Accepted Answer

Before the repurchase, the firm's total equity was $75 million - $12 million = $63 million. 
Thus, the price per share was $63 million / 25 million shares = $2.52 per share.

After the repurchase, the firm will have $63 million in equity and 25 million - (12 million / $2.52 per share) = 20.95 million shares outstanding. 
Thus, the new price per share will be $63 million / 20.95 million shares = $3 per share.

Therefore, the best choice is C, $3.

A Firm Has $75 Million of Assets That Includes $12