4 When a firm buys back stock, what happens to the number of shares outstanding?

Expert Solution

When a firm buys back stock, the number of shares outstanding gets reduced by the number of shares gets buy backed. Buy back of stock refers to Purchasing back stock of the company from the investor, in this way the company return the money to the investors. The buy back helps the company to reduce the cost that is associated to the stocks which helps them to improve the cash flow of the company and try to make compamny balance sheet more stronger.

In this way, when the company purchase the stock the Earning per share (EPS) of the stock gets stronger, as the cash flow of the company will be distributed among less shareholder, this will also enhance the company stock value which will increase the price earning ratio and return on equity.

Example : Total Shares outstanding before Buyback - 10,000

Buy back of Shares - 2,000

So, The new outstanding shares will be =10,000 -2,000

which is 8,000.

jeff jeffy answered 1 year ago

Stock repurchases are transactions in which a firm buys back shares of its own stock, thereby...

Stock repurchases are transactions in which a firm buys back shares of its own stock, thereby (maintianing,increasing,decreasing) shares outstanding, (maintianing,increasing,decreasing) EPS, and often (maintianing,increasing,decreasing) the stock price. There are three principal types of stock repurchases. (1) Situations where a firm has cash available for shareholder distributions and it distributes the cash by repurchasing shares rather than paying cash dividends. (2) Situations where the firm concludes that its capital structure is too heavily weighted with equity, and it sells debt and...

4. Clarkson Corporation is currently an all equity firm that has 450,000 shares of stock outstanding...

4. Clarkson Corporation is currently an all equity firm that has 450,000 shares of stock outstanding with a market price of $52.40 a share. The current cost of equity is 10.5 percent and the tax rate is 25 percent. The firm is considering adding $6.3 million of debt with a coupon rate of 6 percent to its capital structure. The debt will be sold at par value. What is the levered value of the equity? a $18,855,000 b $19,247,000 c...

1. Describe and discuss the journal entries for Treasury stock (when a company buys back their...

1. Describe and discuss the journal entries for Treasury stock (when a company buys back their stock) including what you need to do when Treasury stock is sold at, below or above the price it was purchased. Include in your discussion how Treasury stock affects the Balance Sheet. Review the journal entries and concepts for Treasury stock.

4. Bernice buys shares of stock in ABC Corporation for $400,000. She sells the stock to...

4. Bernice buys shares of stock in ABC Corporation for $400,000. She sells the stock to her daughter, Henrietta, for $300,000. How much loss did Bernice realize on the sale? How much loss did Bernice recognize? Henrietta sells the stock two years after receiving it. What are Henrietta’s realized and recognized gains/losses if Henrietta sells the stock for $100,000, $250,000 or $600,000? If you were going to submit an argument to Congress to change these rules, what would your best...

Consider the following stock information (price and number of shares outstanding): Stock G Stock A Stock...

Consider the following stock information (price and number of shares outstanding): Stock G Stock A Stock Q P0 $70 $85 $105 Q0 200 500 300 P1 $84 $81 $110 Q1 200 500 300 P2 $20 $85 $24 Q2 800 500 1500 1. Based on the information given, for a price-weighted index of the three stocks calculate: 1.1. the rate of return for the first period (t=0 to t=1). Interpret your answer. 1.2. the value of the divisor in the second...

What are the advantages of lower number of shares outstanding ?

Company A currently functions as an unlevered firm with 200,000 shares of stock outstanding and a...

Company A currently functions as an unlevered firm with 200,000 shares of stock outstanding and a market price of $12 a share. The company's EBIT is $300,000. The company borrows $500,000, at 5%. Suppose you are an investor who currently own 10,000 shares of Company A's stock. If you wish to unlever your position, how many shares will you continue to own, if you can loan out funds at 5 percent interest? Ignore taxes. Please show all working and formulas...

Fairyland Inc. has 4 million shares of common stock outstanding, 1 million shares of preferred stock...

Fairyland Inc. has 4 million shares of common stock outstanding, 1 million shares of preferred stock outstanding, and 200 thousand bonds. The common shares are selling for $25 per share, the preferred share are selling for $10 per share, and the bonds are selling for 95 percent of their $1,000 par. (See P10-3 for formula to calculate weights). A. What would be the weight used for equity in the computation of FarCry’s WACC? B. What weight should you use for...

Time Dilation - what happens when you bring the observers back together?

Firm AAA’s stock is currently trading at $2 per share. The Total Shares Outstanding of Firm...

Firm AAA’s stock is currently trading at $2 per share. The Total Shares Outstanding of Firm AAA is 3 billion. Based on this information is this a Mid-Cap firm, Micro-Cap firm, Large Cap firm, or small cap firm? Firm DDD has Current Assets = $50 and Current Liabilities = $100. Which of the following is the correct Current Ratio of this firm? a. 0.5 b. 0.005 c. 1 d. 2 Which of the following financial ratio is forward-looking: (I) Asset...

Question