Question

Startup Pipe has a market value equal to its book value. Currently, the company has excess cash of $14,652, other assets of $152,900, and equity valued at $144,300. There are 6,500 shares of stock outstanding and net income is $18,000. What will the new earnings per share be if the firm decides to use 50 percent of its excess cash to complete a stock repurchase

Answer 1

Answer:

New EPS will be equal to $2.92

Explanation:

It is given equity = $144300

Stock outstanding = 6500

Excess cash of the company = $14652

Net income =$18000

It is given company decides to use 50% of its excess cash to complete stock purchase.

Price per share will be equal to $=\frac{equity}{stock\ outstanding}$

$=\frac{144300}{6500}=22.20$ $

Number of shares repurchased =  $=\frac{excess\ cash \ to \ complete\ a \ stock\ purchase.}{price\ per\ share}$

$=\frac{14652\times 0.5}{22.20}=330\ shares$

New EPS = $\frac{net\ income}{share}$

$=\frac{18000}{6500-330}=2.92$

So new EPS will be equal to $2.92