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
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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