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Luther is a successful logistical services firm that currently has $5 billion in cash. Luther has decided to use this cash to repurchase shares from its investors and has already announced the share repurchase plan. Currently, Luther is an all-equity firm with 1.25 billion shares outstanding. Luther's shares are currently trading at $20 per share.
-After the repurchase, how many shares will Luther have outstanding?
A)1.1 billion
B)1.0 billion
C)0.75 billion
D)1.2 billion

Question

Quizplus · Accepted Answer

The total amount of cash that Luther has to repurchase shares is $5 billion. If Luther's shares are currently trading at $20 per share, then they can repurchase a total of 250 million shares ($5 billion / $20 per share). If Luther currently has 1.25 billion shares outstanding and they repurchase 250 million shares, then the company will have 1.0 billion shares outstanding after the repurchase. Therefore, the correct answer is B) 1.0 billion.

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