Question #22
Reading: Reading 15 Analysis of Dividends and Share Repurchases
PDF File: Reading 15 Analysis of Dividends and Share Repurchases.pdf
Page: 9
Status: Unattempted
Question
The share price of Winnipeg Auto Unlimited is $5 per share. There are 50 million shares outstanding, and Winnipeg has a book value of $900 million. What is the book value per share (BVPS) after the share repurchase of $10 million?
Answer Choices:
A. $14.76
B. $18.54
C. $21.24
Explanation
The share buyback is $10 million / $5 per share = 2,000,000 shares.
Remaining shares: 50 million − 2 million = 48 million shares.
Winnipeg Auto Unlimited's current BVPS = $900 million / 50 million = $18.
Book value after repurchase: $900 million − $10 million = $890 million.
BVPS = $890 million / 48.0 million = $18.54.
BVPS increased by $0.54.
Book value per share (BVPS) increased because the share price is less than the original
BVPS. If the share prices were more than the original BVPS, then the BVPS after the
repurchase would have decreased.