A firm has a market value equal to its book value.Currently,the firm has excess cash of $512 and other assets of $9,500.Equity is worth $6,400.The firm has 250 shares of stock outstanding and net income of $1,500.Assume the firm uses all of its excess cash for a stock repurchase.What will the price per share be after the repurchase?

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Quizplus · Accepted Answer

A repurchase does not change the price per share.Price per share = $6,400/250 = $25.60Number of shares repurchased = $512/$25.60 = 20 sharesNew number of shares outstanding = 250 - 20 = 230 sharesNew price per share = ($6,400 - 512)/230 = $25.60

A Firm Has a Market Value Equal to Its Book