A firm has 10 million shares outstanding with a market price of $20 per share. The firms has $25...
Question:
A firm has 10 million shares outstanding with a market price of $20 per share. The firms has $25 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt. What is the firm's value of operation, and how many shares will remain after the repurchase?
Share Repurchase:
It means that a company buys back its own shares from the market. The result of share repurchase is the reduction in the number of shares outstanding. Since unused cash is costly and shareholders demand a return, share repurchase is a good way to pay off shareholders since it increases their share of ownership in the company.
Answer and Explanation: 1
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View this answer- The firm's market value of equity
= Market Price* Number of Shares Outstanding
=$20*10,000,000 = $200,000,000 - Shares repurchased = Dollar amount for...
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Stock Repurchase: Definition & Benefits
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Chapter 16 / Lesson 6
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In addition to generating sales and covering costs, companies also produce cash. Learn how management can use the money, especially in a publicly-traded company that is repurchasing its own stock.
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