Climax Motors Corp is an all equity company with 40M shares outstandin

Climax Motors Corp is an all equity company with 40M shares outstanding. Climax’s stock trades for $25. Climax has too much cash. The CEO, Trudy Ryder, wants to distribute the excess cash with an open market stock repurchase.

She is contemplating buying back $10.9M worth of shares at a price of $25. Ricky Bobby owns 4 million shares of Climax. He purchased his shares before the repurchase for $25. If Ricky does not sell any shares during the repurchase, then what is his change in wealth from before to after the repurchase?
A) -$2.50 million
B) $0
C) $2.00 million
D) $2.50 million
E) $5.00 million

ANSWER

B