The balance sheet for Rami Corp. is shown here in market value terms. There are

Question

The balance sheet for Rami Corp. is shown here in market value terms. There are 10,000 shares of stock outstanding.
  

  
Instead of a dividend of $1.80 per share, the company has announced a share repurchase of $18,000 worth of stock.
  
How many shares will be outstanding after the repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Shares outstanding             
  
What will the price per share be after the repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
New stock price           $

Market Value Balance Sheet Cash $ 45,700 Equity $ 555,700 Fixed assets 510,000 Total $ 555,700 Total $ 555,700

Explanation / Answer

The stock price is the total market value of equity divided by the shares outstanding, so:

P0 = $555,700 equity / 10,000 shares

P0 = $55.57 per share

Repurchasing the shares will reduce shareholders’ equity by $18,000. The shares repurchased will be the total purchase amount divided by the stock price, so:

Shares repurchased = $18,000 / $55.57

Shares repurchased = 323.92

And the new shares outstanding will be:

New shares outstanding = 10,000 – 323.92

New shares outstanding = 9,676.08

After repurchase, the new stock price is:

New stock price = ($555,700 – 18,000) / 9,676.08 shares

New stock price = $55.57

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.