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A corporation decided to repurchase stock of a shareholder who recently died. The corporation was in...

A corporation decided to repurchase stock of a shareholder who recently died. The corporation was in existence for three years and had lost $50,000 during this period. The original shareholders had invested $25,000 in the business, of which the deceased had invested $5,000. How much may the corporation pay for the stock of the deceased? Explain.

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Answer #1

Greetings,

Deceased shareholder hold 20% of the ownership of the corporation ie 5000/25000×100=20%. Now the repurchase price depends upon the the market capitalisation of the corporation at the time of share repurchase. Since information regarding the same is missing, hence it is not possible to conclude in the same. Loss of 50000 seems illogical as invested capital is 25000. Of we assume that 50000 loss actually materialise ,it means the company is loss making and has negative new worth of -25000. So it's market cap would be very low and even less than face value.

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