16-5. EJH Company has a market capitalization of $2.0 billion and 15 million sha

Question

16-5.

EJH Company has a market capitalization of $2.0 billion and 15 million shares outstanding. It plans to distribute $100 million through an open market repurchase. Assuming perfect capital markets:

a. What will the price per share ofEJH be right before the repurchase?
b. How many shares will be repurchased?
c. What will the price per share of EJH be right after the repurchase?

a. What will the price per share ofEJH be right before the repurchase?
The price per share ofEJH right before the repurchase is $0. (Round to two decimal places.)

b. How many shares will be repurchased?
The number of shares to be repurchased is 0million. (Round to two decimal places.)

c. What will the price per share ofEJH be right after the repurchase?
The price per share of EJH right after the repurchase will be $0. (Round to two decimal places.)
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Explanation / Answer

a) price per share just before repurchase = 2000000000/15000000 = 2000/15 = 400/3 = 133.33 ($) (ANSWER) b) No. of shares repurchased = 100000000/133.33 = 3000000/4 = 750000 (ANSWER) c) No. of shares outstanding = 15000000 - 750000 = 14250000 Market capitalization after repurchase = 2000000000-100000000 = 1900000000 ($) Price just after repurchase = 1900000000 / 14250000 = 190000/1425 = 133.33 ($) ( It seems obvious that price will be same before and after repurchase as repurchase happens at market price.)

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