Question

A firm has a market value equal to its book value. Currently, the firm has excess cash of $900 and other assets of $5,100. Equity is worth $6,000. The firm has 1,000 shares of stock outstanding and net income of $1,200. 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

Answer 1

Answer:

$850

Explanation:

Price per share = $6,000 ÷1,000 = $6

Number of shares repurchased = $900 ÷$6 = $150

New number of shares outstanding = $1,000 - $150 = $850

Therefore $850 shares of stock will be outstanding after the stock repurchase is completed