A firm has $300 million of assets that includes $40 million of cash and 8 million shares outstanding. If the firm uses $30 million of its cash to repurchase shares, what is the new price per share?

Question

Quizplus · Accepted Answer

- Before repurchase, the value per share is: ($300 million - $40 million) / 8 million shares = $32.50
- After repurchase, the total value of the firm's assets is $300 million - $30 million = $270 million
- The number of shares outstanding is reduced to 8 million - ($30 million / $32.50) = 7.38 million shares
- The new price per share is: $270 million / 7.38 million shares = $36.60, which is closest to the answer choice of $37.50.

A Firm Has $300 Million of Assets That Includes $40