Question

Davidson international has 13,700 shares of stock outstanding at a price per share of $28. the firm has decided to repurchase 500 of those shares in the open market. what will the price per share be after the share repurchase is completed? ignore taxes and market imperfections.

Answer 1

The shareholder equity is equal to:

$28/share * 13 700 shares = $ 383,600

This is the total capital of Davidson International. Now, assuming that there is no additional income since it is not implied in the problem, the total equity does not change. However, the shares become: 13,700 + 500 = 14 200 shares.

Price per share now becomes:

$383 600 / 14 200 shares = $27/share