Question

​CareMore, Inc. provides​ in-home medical assistance to the elderly and earned net income of 4.8 million that it plans to use to repurchase shares of the​ firm's common​ stock, which is currently selling for $48 a share. CareMore has 20 million shares of stock outstanding. a. What fraction of the​ firm's shares can the firm repurchase for $4.8​million? b. If the share repurchase has no impact on the​ firm's net​ income, what will be its earnings per share after the​ repurchase? a. What fraction of the​ firm's shares can the firm repurchase for ​4.8 million? ​ (Round to two decimal​ places.) b. If the share repurchase has no impact on the​ firm's net​ income, what will be its earnings per share after the​ repurchase?

Answer 1

Answer :(a.) Calculation of Number of Shares that the firm can repurchase for 4.8 million :

Number of shares that can be Repurchased = Amount Available for Repurchase / Current price

= 4,800,000 / 48

= 100,000 shares or 0.1 million

Fraction of Firm shares that can be purchased = 0.1 / 20 = 0.005 or 0.01

(b.)  If the share repurchase has no impact on the​ firm's net​ income, Calculation of earnings per share after the​ repurchase :

Earning Per share = Earnings / Number of shares outstanding

= 4,800,000 / (20,000,000 - 100,000)

= 0.24