Allison's has a market value equal to its book value. Currently, the firm has excess cash of $1,100 and other assets of $12,400. Equity is worth $13,500. The firm has 2,500 shares of stock outstanding and net income of $10,800. What will be the new earnings per share if the firm uses its excess cash to complete a stock repurchase

$4.70

Explanation:

The new earnings per share will be calculated thus:

Total Earnings = $10,800

Outstanding Shares = 2,500

Equity = $13,500

Per Share Value:

= Equity / Outstanding shares

= $13,500/2,500

= $5.4 per share

The number of shares that' will be bought by the excess cahs will be:

= 1100/5.4

= 203.70 shares

Number of shares outstanding after buyback will be:

= 2,500 - 203.70

= 2296.30

Earnings per share will then be:

= 10,800/2,296.30

= $4.70

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