Question

A firm has 5,490 common shares outstanding with a total market value of $249,620. Currently, the...

A firm has 5,490 common shares outstanding with a total market value of $249,620. Currently, the firm has excess cash of $12,370 and net income of $19,970. If the firm uses all of its excess cash to repurchase the common shares, what will be the revised EPS after the stock repurchase is complete?

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Answer #1

Market price per share will be repurchases price.

Current market price per share = Total market value/number of shares

=249620/5490

45.46812386

Repurchase price = 45.46812386

Number of shares repurchased = Excess cash/share price of repurchases

=12370/45.46812386

=272.0587293 or 272 shares

Shares held after repurchase = Outstanding shares - shares repurchased

=5490-272

=5218 shares

EPS after repruchase = Net income/shares held after repurchase

=19970/5218

=3.827136834

so revised EPS is $3.83

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