TJ's has a market value equal to its book value. Currently, the firm has excess cash of $218,500, other assets of $897,309, and equity of $547,200. The firm has 40,000 shares of stock outstanding and net income of $59,800. Management has decided to spend 15 percent of the excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?

Question

Milo Davila

Business

8 December, 15:12

TJ's has a market value equal to its book value. Currently, the firm has excess cash of $218,500, other assets of $897,309, and equity of $547,200. The firm has 40,000 shares of stock outstanding and net income of $59,800. Management has decided to spend 15 percent of the excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?

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Hunter Solomon · Answer 1

Given:

Excess cash = $218,500

Assets = $897,309

Equity = $547,200

outstanding shares of stock = 40,000

Net income = $59,800.

Repurchase program = 15% of excess cash

Book value per share (price per share) = equity/number of shares

= $547200/40000

= $13.68 per share

Total cost of repurchase program = percentage of excess cash used * value of excess cash

= 15/100 * 218500

= $32775

Total number of shares bought in repurchase program = total cost of the repurchase program/price per share

= $32775/$13.68

= 2395.8 shares

= 2395 shares