will rate anwser A firm has a market value equal to its book

will rate anwser

A firm has a market value equal to its book value. Currently, the firm has excess cash of $600 and other assets of $5,400. Equity is worth $6,000. The firm has 300 shares of stock outstanding and net income of $675. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?

Solution

PAR VALUE OF EQUITY ($6000/300) = $20

NUMBER OF EQUITY CAN BE PURCHASED WITH EXCESS CASH OF $150 ($150 / $20) = 7.50 SHARES

BALANCE SHARE AFTER REPURCHASE (300 – 7.50) = 292.50 SHARES

NEW EARNNING PER SHARE ($675 / 292.50) = $2.31

Hence, correct option is $2.31