Question

PQR Co has 80,000 shares of stock outstanding with a market price of $5 per share....

PQR Co has 80,000 shares of stock outstanding with a market price of $5 per share. Total earnings for the current year is $127,800. The firm has cash of $45,000 in excess of what is necessary to fund its positive NPV projects. The firm has other assets worth $475,000 (market value). What will be the firm's earnings per share after the repurchase if the firm uses the $45,000 excess cash to buy back stock at $5 per share ?

a

$1.60

b

$1.80

c

$1.76

d

$1.92

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Homework Answers

Answer #1

Total Earnings = $127,800

Number of shares outstanding = 80,000 shares

Market price per share = $5

Excess cash used for repurchase = $45,000

Number of shares it can repurchase = $45,000 / $5 = 9,000 shares

Total number of shares after repurchase = 80,000 - 9000 = 71,000 shares

Earnings per share after repurchase = Total Earnings / Total number of shares outstanding

Earnings per share after repurchase = $127,800 / 71,000

Earnings per share after repurchase = $1.80

Option 'b' $1.80 is correct

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