Question

The balance sheet for Sinking Ship Corp. is shown here in market value terms. There are 14,000 shares of stock outstanding. Market Value Balance Sheet Cash $ 53,700 Equity $ 438,700 Fixed 385,000 assets 438,700 Total $ Total 438,700 $ Instead of a dividend of $1.30 per share, the company has announced a share repurchase of $18,200 worth of stock. How many shares will be outstanding after the repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Shares outstanding

2. What will the price per share be after the repurchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

1) Stock price = Total market value of equity / Shares outstanding

Stock price = $438,700 / 14,000 shares

Stock price = $31.3357

Repurchasing the shares will reduce shareholders’ equity by $18,200.

Shares repurchased = $18,200 / $31.3357

Shares repurchased = 580.81

New shares outstanding = 14,000 - 580.81

New shares outstanding = 13,419.19

2) New stock price = ($438,700 – $18,200) / 13,419.19 shares

New stock price = $31.34