Aaron's Nursery has 6,000 shares of stock outstanding at a market price of $20 a share. The earnings per share are $1.54. The firm has total assets of $315,000 and total liabilities of $186,000. Today, the firm is repurchasing $4,800 worth of stock. Ignore taxes. What will the earnings per share be after the stock repurchase?

Question

Quizplus · Accepted Answer

After the repurchase, the number of shares outstanding will decrease, increasing the earnings per share. Calculate the number of shares repurchased: $4,800 / $20 = 240 shares. New shares outstanding = 6,000 - 240 = 5,760 shares. New EPS = Total earnings / New shares outstanding = (6,000 * $1.54) / 5,760 = $1.604.

Aaron's Nursery Has 6,000 Shares of Stock Outstanding at a Market