Abc company has net income of $2 million, a value of $15 million and 500,000 shares...

Abc company has net income of $2 million, a value of $15 million and 500,000 shares o/s. You are planning to use $1.2 million of excess cash to buy back shares. How much will your EPS (earnings per share) increase?

Expert Solution

EPS = Net Income / No. of Shares

Now,

Current EPS = Net Income / No. of Shares

= 2,000,000 / 500,000

Current EPS = $4

After Buy Back,

Price per share = 15,000,000 / 500,000

= $30

No. of Shares Buy Back = 1,200,000 / 30

= 40,000 shares

New EPS = 2,000,000 / (500,000 - 40,000)

= 2,000,000 / 460,000

New EPS = $4.35

Therefore, Increase in EPS = $4.35 - $4 = $0.35 or 8.75%

jeff jeffy answered 2 years ago

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