A firm has a market value equal to its book value.Currently,the firm has excess cash of $525 and other assets of $9,200.Equity is worth $7,000.The firm has 1,000 shares of stock outstanding and net income of $420.The firm has decided to spend all of its excess cash on a share repurchase program.How many shares of stock will be outstanding after the stock repurchase is completed?

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Quizplus · Accepted Answer

Current price per share = $7,000/1,000 = $7Number of shares repurchased = $525/$7 = 75 sharesNew number of shares outstanding = 1,000 - 75 = 925 shares

A Firm Has a Market Value Equal to Its Book