(Stock repurchases and earnings per share) CareMore, Inc. provides in-home medic
ID: 2621119 • Letter: #
Question
(Stock repurchases and earnings per share) CareMore, Inc. provides in-home medical assistance to the elderly and earned net income of $4.7 million that it plans to use to repurchase shares of the firm's common stock, which is currently selling for $40 a share. CareMore has 10 million shares of stock outstanding. a. What fraction of the firm's shares can the firm repurchase for $4.7 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 $4.7 million? % (Round to two decimal places.)Explanation / Answer
QUESTION 1
a) Price per Share = $40
Available amount for repurchase = $4.7 mil
Number of shares repurchased = $4.7 mil/$40 = 0.1175 mil = 117,500
Fraction of shares that can be repurchased of current outstanding = 0.1175mil/10 mil = 1.18%
b) Number of shares outstanding after repurchase = 10,000,000 - 117,500 = 9,882,500
EPS = Net Income/Number of shares outstanding = 4,700,000/9,882,500 = $0.476/share
Question 2
a) Earnings per share before split = $40 mil/10 mil = $4 per share
b) In question, stock goes for 3-for-1 stock split. It means every 1 stock would be divided into 3 stocks. Number of shares outstanding after split = 10 mil * 3 = 30 mil
c) Earnings per share after split = $40 mil/30 mil = $1.3333 per share
d) Pre-spit total earnings = Number of Shares * EPS (pre-split) = 100 * $4 = $400
Post-split total earnings = Number of shares * EPS (post-split) = 3 * 100 * $1.3333 = $400
e) By earnings pers share calculated above both pre- and post- split, it clearly indicates no change in financial position of investor. Hence, NO CHANGE (or SAME) is the answer.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.