Question

Problem 14-04 Stock Repurchase A firm has 5 million shares outstanding with a market price of $15 per share. The firm has $15 million in extra cash (short-term investments) that it plans to use in a stock repurchase; the firm has no other financial investments or any debt. What is the firm's value of operations after the repurchase

Answer 1

$60 million

Explanation:

The computation of the value of operations after the repurchase is shown below:-

Total corporate value = Value of operation + marketable securities

(5 × $15 million) = Value of operation + $15 million

$75 million = Value of operation + $15 million

Value of operation = $75 million - $15 million

= $60 million

We simply applied the above formula so that the firm's value of operations after the repurchase could come