Question #24
Reading: Reading 15 Analysis of Dividends and Share Repurchases
PDF File: Reading 15 Analysis of Dividends and Share Repurchases.pdf
Page: 10
Status: Unattempted
Question
The share price of Solar Automotive Industries is $50 per share. It has a book value of $500 million and 50 million shares outstanding. What is the book value per share (BVPS) after a share repurchase of $10 million?
Answer Choices:
A. $10.12
B. $10.00
C. $9.84
Explanation
The share buyback is $10 million / $50 per share = 200,000 shares.
Remaining shares: 50 million − 200,000 = 49.8 million shares.
Solar Automotive Industries' current BVPS = $500 million / 50 million = $10.
Book value after repurchase: $500 million − $10 million = $490 million.
BVPS = $490 million / 49.8 million = $9.84.
BVPS decreased by $0.16.
Book value per share (BVPS) decreased because the share price is greater than the original
BVPS. If the share prices were less than the original BVPS, then the BVPS after the
repurchase would have increased.