Willys-Overland Motors Inc.produces 4×4 quarter-ton trucks.Selected financial information for Willys-Overland is provided in the table below.
The CEO,John Willys,wants to distribute $1B of cash using a stock repurchase.He intends to repurchase 15 million shares at a price of $70.Mr.Willys owns 22.5 million shares (worth $1,395 million before the repurchase).He does not plan to sell any of his shares during the repurchase.What is his wealth after the repurchase?
Willys-Overland Motors Inc.
Selected Financial Information

Question

Quizplus · Accepted Answer

The fraction repurchased, f, is 11ea7fdb_fc55_3833_a768_8b69f212466b_TB2902_11 = 10% and the repurchase price is $70: The stock price after the repurchase is: P_A = P_B 11ea7fdb_fc55_3834_a768_a70d528e5053_TB2902_11 - P_R 11ea7fdb_fc55_3835_a768_8b9686b5d59f_TB2902_11 P_A = $62 × 11ea7fdb_fc55_3836_a768_93df8bb4780f_TB2902_11 - $70 × 11ea7fdb_fc55_3837_a768_952b3f7fecd9_TB2902_11 P_A = $61.11 After the repurchase, their shares are worth: Value of shares = 22.5M × $61.11 Value of shares = $1,375 million