Question

Bo's Home Manufacturing has 360,000 shares outstanding that sell for $45.71 per share. The company has...

Bo's Home Manufacturing has 360,000 shares outstanding that sell for $45.71 per share. The company has announced that it will repurchase $56,000 of its stock. What will the share price be after the repurchase?

Homework Answers

Answer #1

After the share repurchase, the total value of the company will not change. However, the share price will adjust for the decreased number of shares outstanding.

total value of the company = current share price * current shares outstanding

Share price after repurchase = (current share price * current shares outstanding) / (current shares outstanding - number of shares repurchased)

number of shares repurchased = value of stock repurchased / current share price

number of shares repurchased = ($56,000 / $45.71) = 1,225.11

As fractional shares cannot be repurchased, this is rounded off to 1,225

Share price after repurchase = ($45.71 * 360,000) / (360,000 - 1,225)

Share price after repurchase = $45.87

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