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5 April, 03:16

TJ's has a market value equal to its book value. Currently, the firm has excess cash of $218,500, other assets of $897,309, and equity of $547,200. The firm has 40,000 shares of stock outstanding and net income of $59,800. Management has decided to spend 15 percent of the excess cash on a share repurchase program. How many shares of stock will be outstanding after the stock repurchase is completed?

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  1. 5 April, 06:50
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    Given:

    Excess cash = $218,500

    Assets = $897,309

    Equity = $547,200

    outstanding shares of stock = 40,000

    Net income = $59,800.

    Repurchase program = 15% of excess cash

    Book value per share (price per share) = equity/number of shares

    = $547200/40000

    = $13.68 per share

    Total cost of repurchase program = percentage of excess cash used * value of excess cash

    = 15/100 * 218500

    = $32775

    Total number of shares bought in repurchase program = total cost of the repurchase program/price per share

    = $32775/$13.68

    = 2395.8 shares

    = 2395 shares
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