A firm has a market value equal to its book value,excess cash of $400,other assets of $9,200,and equity of $9,800.The firm has 500 shares of stock outstanding and net income of $420.The firm has decided to spend all of its excess cash on a share repurchase program.How many shares of stock will be outstanding after the stock repurchase is completed?

Question

Quizplus · Accepted Answer

Current price per share = $9,800 / 500 = $19.60
New number of shares outstanding = 500 − ($400 / $19.60)= 480 shares

A Firm Has a Market Value Equal to Its Book