A firm has a total market value of assets of $300 million that includes $60 million of cash and 8 million shares outstanding. If the firm uses $30 million of its cash to repurchase shares, what is the new price per share?

Question

Quizplus · Accepted Answer

A) Price per share before repurchase equals total market value of assets divided by number of shares.
New shares = existing shares - (cash spent divided by price per share in A).
New price per share = (Total market value of assets - cash spent) / (new number of shares outstanding in B).
Per share price (old) = $250 million / 10 million = $37.50;
Number of shares left after repurchase = 8 million - ($30 million / $37.5) = 7.2 million;
New price per share = ($300 - $30) / 7.2 million = $37.50

A Firm Has a Total Market Value of Assets of $300