Question

In: Finance

The balance sheet for Pie Crust, Inc., is shown here in market value terms. There are...

The balance sheet for Pie Crust, Inc., is shown here in market value terms. There are 15,000 shares of stock outstanding.

Market Value Balance Sheet
  Cash $140,000  
  Fixed assets 470,000     Equity $610,000  
      Total   $610,000         Total $610,000  

In lieu of a dividend of $1.20, the company has announced it is going to repurchase $18,000 worth of stock instead of paying a dividend.

Requirement 1:
What effect will this transaction have on the equity of the firm? (Do not round intermediate calculations. Input the amount as positive value.)
  Will (Click to select)reduceincrease shareholders’ equity by $
Requirement 2:

How many shares will be outstanding after the repurchase? (Do not round intermediate calculations.Round your answer to the nearest whole number (e.g., 32).)

  New shares outstanding    
Requirement 3:

What will the price per share be after the repurchase? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

  Share price $    
Requirement 4:
Is the share repurchase effectively the same as a cash dividend?

Solutions

Expert Solution

Calculate the repurchase of equity and number of shares after repurchase as follows:

Formulas:


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