Question

The market price of a company's stock is $5 per share with 50 million shares      outstanding....

The market price of a company's stock is $5 per share with 50 million shares

     outstanding. The company decides to use its cash reserves to undertake a $10 million

     share buyback. Just prior to the buyback, the company reports total assets of $650

     million and total liabilities of $450 million. The company's book value per share after

     the share buyback is closest to:

A. $3.96.

B. $4.17.

C. $3.80.

D. $5.15

Homework Answers

Answer #1

we have given

Total Assets - $650 Million

Total Liabilities - $450 Million

So, Stock Holder Equity = Total Assets - Total Liabilities

= $650 Million - $450 Million

= $200 Million

Now, The Company wants to buy back shares worth $10 Million

Stockholder equity after buyback = Stock Holder equity before buyback - Amount of buyback

= $200 million - $10 Million

= $190 Millions

So, Number of shares of Buyback = Amount of Buyback / Price per share

= $10 Million / 5

= 2 Million shares

So, The Number of shares after buyback = 50 Millions - 2 Millions

= 48 Million shares

Book Value of share after buyback = Stockholder equity after buyback / Number of shares after buyback

= 190 Millions / 48 Millions

= $3.9583 or 3.96 (Rounded to near cent)

The correct answer is $3.96 (Option A)

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