Question

Luther is a successful logistical services firm that currently has $5 billion in cash. Luther has decided to use this cash to repurchase shares from its investors, and has already announced the stock repurchase plan. Currently Luther is an all equity firm with 1.25 billion shares outstanding. Luther's shares are currently trading at $20 per share.The market value of Luther's non-cash assets is closest to:

Answer 1

The non-cash assets of Luther is closest to a market value of $20 billion.

• Based on the accounting equation that Assets = Liabilities + Equity, the non-cash assets can also be determined as follows:

• Non-cash Assets + Cash = Liabilities + Equity (market value)

• Non-cash assets = 0 + $25 billion - $5 billion

• Non-cash assets = $20 billion.

Data and Calculations:

Available cash = $5 billion

Number of equity shares = 1.25 billion

Current market price per share = $20

Market value of Equity = $25 (1.25 billion x $20)

• Non-cash assets = $20 ($25 - $5) billion

Thus, Luther's non-cash assets has a market value of $20 billion.

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