Question

XYZ Corp. currently has $37 million in excess cash that it plans on returning to its shareholders through a share repurchase. XYZ's current share price is $16.9 and it currently has 25.6 million shares outstanding. In addition, the market value of the company's debt is $14 million. Assuming perfect markets, what will XYZ's share price be after it uses the excess cash to repurchase shares? Round your answer to two decimals (don't include the $-symbol in your answer).

Answer 1

Value of equity = Number of shares * current share price
= 25,600,000 * $16.9
= $432,640,000

Number of shares repurchased =Excess cash / current price = $37,000,000 / $16.9 = 2,189,349.11

Number of shares left after repurchase = 25,600,000 - 2,189,349.11 = 23,410,650.89

Value of equity after repurchase = $432,640,000 - $37,000,000 = $395,640,000

Share price after repurchase = Value of equity after repurchase / Number of shares left after repurchase
= $395,640,000 / 23,410,650.89
= $16.90

Share price after repurchase = $16.90