The Down Towner has a market value balance sheet as shown below.The firm currently has 12,000 shares of stock outstanding and net income of $17,500 The firm has decided to repurchase 10 percent of its outstanding stock at the current market price and fund that purchase with new debt.After the repurchase there will be ____ shares outstanding at a price per share of ____
A)10,200; $11.50
B)10,200; $12.65
C)10,800; $12.65
D)10,800; $11.50
E)10,800; $14.05

Question

Quizplus · Accepted Answer

The firm is repurchasing 10% of its 12,000 shares, which is 1,200 shares. Therefore, 12,000 - 1,200 = 10,800 shares will remain outstanding. The price per share remains unchanged at $12.65 as the repurchase is funded by new debt, not affecting the share price.

The Down Towner Has a Market Value Balance Sheet as Shown