Question

The balance sheet for Throwing Copper, Inc., is shown here in market value terms. There are 28,000 shares of stock outstanding.

Market Value Balance Sheet
Cash	$	130,000
Fixed assets		494,960		Equity	$	624,960
Total	$	624,960		Total	$	624,960

The compay has announced it is going to repurchase $42,000 worth of stock instead of paying a dividend of $1.50.

What effect will this transaction have on the equity of the firm? (Input the answer as positive value. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

Will (Click to select)increasereduce shareholders’ equity by $

How many shares will be outstanding after the repurchase? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

New shares outstanding             

What will the price per share be after the repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Share price            $

Answer 1

Solution

Total share =  28,000 , Market value of equity = 624,960 Per share price = 624,960 / 28,000 = 22.32

Part A ) Plan is to use $ 42000 to purcchase the share so equity will reduce by this amount

Part B ) No of shares that can be purchsed = Amount / Share price = 42,000 / 22.32 = 1881.72 = 1882

Part C ) New share otstanding = Old share outstanding - repurchase share = 28000 -1882 = 26118

Part D ) Share price = new equity value / new shares outstanding = (624,960? -42000 )/ 26118 = 22.32