Jenningston Mills has a market value equal to its book value.Currently,the firm has excess cash of $1,200,other assets of $5,800,and equity valued at $3,750.The firm has 250 shares of stock outstanding and net income of $420.What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?
A)$1.83
B)$1.89
C)$1.96
D)$2.00
E)$2.08

Question

Quizplus · Accepted Answer

Price per share = $3,750/250 = $15Number of shares repurchased = (0.25 × $1,200)/$15 = 20 sharesNew EPS = $420/(250 - 20) = $1.83

Jenningston Mills Has a Market Value Equal to Its Book