The following data apply to Elizabeth's Electrical Equipment: The company plans on distributing $1,000 by repurchasing stock. What will the intrinsic per share stock price be immediately after the repurchase?

Question

Quizplus · Accepted Answer

The intrinsic per share stock price after a repurchase can be calculated using the formula:

Intrinsic price per share = (Total equity value – Repurchase amount) / Total shares outstanding after repurchase

Given that the repurchase amount is $1,000, the total equity value after the repurchase will be: 
$15,000 original equity value – $1,000 repurchase amount = $14,000

To determine the total shares outstanding after the repurchase, we need to know the current number of shares outstanding. Since this information is not provided, we cannot calculate the exact intrinsic per share stock price. However, we can eliminate choices A, C, D, and E since they are based on specific calculations that require the number of shares outstanding.

The only logical answer is B, which provides a general estimate that is reasonable. If the company had a small number of shares outstanding before the repurchase, the intrinsic price per share would be higher than $50, and if it had a large number of shares outstanding, the intrinsic price per share would be lower than $50.

The Following Data Apply to Elizabeth's Electrical Equipment: the Company