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30 November, 04:53

The following data apply to Elizabeth's Electrical Equipment: Value of operations $20,000 Short-term investments $1,000 Debt $6,000 Number of shares 300 The company plans on distributing $1,000 by repurchasing stock. What will the intrinsic per share stock price be immediately after the repurchase

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  1. 30 November, 06:09
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    Intrinsic value $50

    Explanation:

    Calculation for the intrinsic per share stock price be immediately after the repurchase

    Using this formula

    Total Assets = Value of operations + Short term investments

    $20,000+$1,000 = $21000

    Debt = $6000

    Formula for Equity

    Equity = Assets - Debt

    = $21000-$6000 = $15000

    Number of shares outstanding = 300

    Intrinsic value per share =

    $15,000/300

    =$50

    Share buy back is been seen as a way of returning value to shareholders which means it will not impact the intrinsic value per share.

    Therefore the intrinsic value will remain as $50
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