A firm has 20 million shares outstanding with a market price of $25 per share. T

Question

A firm has 20 million shares outstanding with a market price of $25 per share. The firm has $10 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. How many shares will remain after the repurchase? Round your answer to the nearest whole number

Explanation / Answer

Solution:

            Vop = (n0*P) ? Extra cash = (10,000,000 x $20) ? $25,000,000 = $175,000,000.

So,

n = Vop / P = $175,000,000 / $20 = 8,750,000.

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