Problem 14-4 Stock Repurchase A firm has 15 million shares outstanding with a ma
ID: 2724099 • Letter: P
Question
Problem 14-4
Stock Repurchase
A firm has 15 million shares outstanding with a market price of $25 per share. The firm has $15 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt. What is the firm's value of operations after the repurchase? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
$ million
How many shares will remain after the repurchase? Round your answer to the nearest whole number.
shares
Explanation / Answer
The total value of equity is 15 million * 25 = 375 million.
After repurchase value of equity willbe 375 million - 15 million = 360 million.
Value of firm is value of equity = 360 million as it has no debt.
After repurchase no.of shares left is 360 million / 25 = 14.4 million shares