If you use cash to buy back shares and pay over current book value, the resuting book value (post buy back) will be… Higher Lower ? I always thought if you pay over book for shares in the market, then resulting book will be LOWER, but I’m reading otherwise in BSSA answer key that BV will increase. Thanks.
What is this BSAS everyone is talking about all of a sudden?? And I think paying over book value would result in a lower book value.
I am sure BSAS is incorrect
Paying Over Book Value makes Book Value rise. That’s because the denominator ( shares ) is worth more to extinguish than to hold. Drop in denominator is higher than drop in numerator ( Book value drop owing to repurchase). So the BVPS rises
Not sure what you are talking about. If share repurchase price > BVPS BVPS falls, after the repurchase. Not sure at all… please check out pg 158-159 of Corp Fin for examples of this.
cpk , you are right . I had it exactly backwards. BVPS will drop if yu pay more than book value to repurchase shares
Well, isn’t the denominator in the BVPS the number of shares? That doesn’t change since they paid cash for the acquired company… Maybe this is simplistic, but new BV = old BV -cash paid +acquired BV. That’s how I would think about it.
If BVPS < Market Price, a repurchase will decrease book value. If BVPS > Market Price, a repurchase will increase book value.
I agree, it’s all over CFAI and Schweser. MV > BV, a repurchase will DECREASE book value. Is the almighty BSAS wrong?
my bad… did not read it right.