ABC has 41,200,000 shares outstanding with mkt value $50/share. ABC made 200 million in profits, 70% will be reinvested, the remaining 60m will be used to repurchase shares at $50/share. However, the board decides to borrow $60million that it will use to repurchase the shares. The CFO has compilied the following: Share price @ buyback = 50 shares outstanding before buyback = 41,200,000 EPS before buyback = 10 Earnings yield = 10/50 = 20% Cost of borrow = 8% Planned buyback = 1,200,000 The new EPS after repurchase is: A) $5.03 B) 8.25 C) 10.18 D) 12.35
has been solved before… 10.18 Choice C Earnings = 41.2 * 10 = 412 M Now (412 - 60 * .08) / 40 = 10.18
C? Earnings = 41,200,000 * 10 before repurchase Earnings after repurchase = 412 mil - .08 * 60 mil = 407.2 shares after re purchase = 40 mil EPS = 407.2 / 40 = 10.18
calculated earnings = 412 - cost of debt = 407.2 calculated outstanding shares = 41.2 - 1.2 = 40m EPS = 407.2/40 = 10.18 = C? - Dinesh S
C