Question #43
Reading: Reading 15 Analysis of Dividends and Share Repurchases
PDF File: Reading 15 Analysis of Dividends and Share Repurchases.pdf
Page: 16
Status: Unattempted
Question
The current stock price of Westkirk is $50.00 per share. Book value of equity is $200 million and 10 million shares are outstanding. If Westkirk repurchases $25 million of their stock, the change in book value per share after the repurchase is closest to a(n):
Answer Choices:
A. increase of $1.10
B. decrease of $2.50
C. decrease of $1.60
Explanation
Book value per share before the repurchase = $200 million / 10 million shares = $20.00 per
share.
Shares repurchased = $25 million / $50.00 = 500,000 shares.
Remaining shares = 10 million – 500,000 = 9.5 million shares.
After the repurchase, book value = $200 million – $25 million = $175 million.
Book value per share after the repurchase = $175 million / 9.5 million shares = $18.42.
Difference = $18.42 – $20.00 = –$1.58 per share.