You are doing some analysis on the has a market value that is equal to its book value. Currently, the firm has excess cash of $1,000 million and other assets of $9,000 million. Equity is worth $10,000 million. The firm has 700 million shares of stock outstanding and net income of $1,575 million. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?

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Business

15 September, 23:58

You are doing some analysis on the has a market value that is equal to its book value. Currently, the firm has excess cash of $1,000 million and other assets of $9,000 million. Equity is worth $10,000 million. The firm has 700 million shares of stock outstanding and net income of $1,575 million. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase?

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Answers (2)

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Moran · Answer 1

the new earnings per share will be 231 cents

Explanation:

Earnings per share is Earnings attributable to each Common Share.

Earnings Per Share = Earnings attributable to Holders of Common Stock / Weighted Average Number of Common Shares

= $1,575 million / (700 million-250/10000*700 million)

= $1,575 million / (700 million-17,2 million)

= 231 cents

Addyson Lang · Answer 2

Earnings per share is $2.31

Explanation:

value of one share=$10,000 million/700 million=$14.29

25% of excess cash = 25%*$1000 million=$250 million

Number of shares repurchased=$250 million/$14.29=17.5 million

Outstanding shares after share repurchase=700 million-17.5 million

=682.5 million

Earnings per share = earnings attributable to common stock/number of common stock

earnings stands at $1,575 million

number of common stock 682.5 million

Earnings per share=1,575 million/682.5 million

Earnings per share=$2.31 or 231 cents

The new earnings per share is $2.31 or 231 cents as shown in the step by step analysis above.