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:
jeff jeffy answered 2 years agoRelated Solutions
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Cash
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Fixed assets
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Equity
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595,920
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Fixed assets
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Market Value Balance Sheet
Cash
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Equity
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Fixed Assets
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The balance sheet for Sinking Ship Corp. is shown here in market value terms. There are...
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value terms. There are 6,000 shares of stock outstanding.
Market Value Balance Sheet
Cash
$
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Equity
$
474,900
Fixed assets
430,000
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$
474,900
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Ignoring any tax effects, what is the stock selling for
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Ignoring any tax effects, what will it sell for tomorrow?
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The market value balance sheet for Bobaflex Manufacturing is
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Cash
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Debt
$
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Fixed assets
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Equity
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There are 34,000 shares of stock outstanding. What is the
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Book-Value Balance Sheet
Net working capital
$
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Debt
$
40
Long-term assets
65
Equity
60
$
100
$
100
Market-Value Balance Sheet
Net working capital
$
35
Debt
$
40
Long-term assets
190
Equity
185
$
225
$
225
Assume that MM’s theory holds except for taxes. There is no
growth, and the $40 of debt is expected to be permanent. Assume a
37% corporate tax rate....
Here are book and market-value balance sheets of the United Frypan Company: Book-Value Balance Sheet Net...
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Net working capital
$
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Debt
$
60
Long-term assets
30
Equity
40
$
100
$
100
Market-Value Balance Sheet
Net working capital
$
70
Debt
$
60
Long-term assets
150
Equity
160
$
220
$
220
Assume that MM’s theory holds except for taxes. There is no
growth, and the $60 of debt is expected to be permanent. Assume a
36% corporate tax rate....
Here are book- and market-value balance sheets of the United Frypan Company: Book-Value Balance Sheet Net...
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Frypan Company:
Book-Value Balance Sheet
Net working capital
$
30
Debt
$
80
Long-term assets
70
Equity
20
$
100
$
100
Market-Value Balance Sheet
Net working capital
$
30
Debt
$
80
Long-term assets
170
Equity
120
$
200
$
200
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Current assets
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Current Liabilities
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Costs
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Fixed assets
5,183
Long-term debt
2,487
Taxable income
960
Equity
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Retained earnings
500
Net income
624
Total
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The company is running at full capacity and the company
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