A firm has a market value equal to its book value. Currently, the firm has exces

Question

A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,000, other assets of $5,000, and equity of $6,000. The firm has 600 shares of stock outstanding and net income of $700. The firm has decided to spend half of its excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed? MC Qu. 19-A3 A firm has a market value equal to its book value. Currently, the... 510 shares O 570 shares O 530 shares O 590 shares O 550 shares

Explanation / Answer

Price per share = Equity/number of shares = $6,000 / 600 = $10

Number of shares repurchased = (excess cash/2) / price per share = $(1,000/2)/ $10 = 50

Newnumber of shares outstanding = 600-50 = 550

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