Question

You own $5,000 shares of stock that currently sells for $30 a share. There are 2 million shares outstanding. The firm has announced that it plans to devote $10,000,000 to a share repurchase. Assume you do not participate in the repurchase and calculate the total value of your investment and your percentage of ownership both before and after the repurchase. After the repurchase you will own less of the company than you do now.

Answer 1

Answer:

percentage of ownership:

before 0.25%

after 0.30%

Value of the investment:

5,000 stock x $30 = 150,000

Explanation:

To get the currnet percentage of ownership:

portfolio stock / shares outstanding

5,000 stock / 2,000,000 = 0.0025 = 0.25%

Now, for the escenario after the repurchase:

First, how many shares were repurchased:

10,000,000 / 30 = 333,333 stock repurchased

Then, how many are outstanding:

2,000,000 - 333,33 = 1,666,667

Last, the new percentage of ownership

5,000 stock / 1,666,667 = 0.02999 = 0.30%

value of the investment:

5,000 stock x $30 = 150,000