JM Case Inc.has a market value of $5 million with 500,000 shares outstanding.The book value of its equity is $1,750,000.If the company repurchases 20 percent of its shares in the stock market,what will be the book value of equity if all else remains the same?
A) $750,000
B) $1,250,000
C) $1,000,000
D) $1,400,000
E) $4,000,000

Question

Quizplus · Accepted Answer

The book value of equity will decrease by the amount of the repurchased shares, which is 20% of $1,750,000, or $350,000. Therefore, the new book value of equity will be $1,750,000 - $350,000 = $1,400,000.