Question

juanes inc is considering doing a repurchase of $800000 worth of its stock. the firm is currently unlevered and is worth $20000000 and there are 250,000 shares outstanding. assuming no signaling effects, what will juanes' share price after the repurchase?

Answer 1

The share price after the repurchase is computed as shown below:

Current share price is computed as follows:

= $ 20000000 / 250,000 shares

= $ 80

So, the number of shares that will be repurchased is computed as follows:

= $ 800000 / $ 80

= 10,000 shares

So, the price after the repurchase will be as follows:

= $ 20000000 / ( 250,000 shares - 10,000 shares)

= $ 20000000 / 240,000 shares

= $ 83.33 Approximately

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