Luther is a successful logistical services firm that currently has $5b
QUESTION
Luther is a successful logistical services firm that currently has $5billion in cash. Luther has decided to use this cash to repurchase shares from its investors, and has already announced the stock repurchase plan. Currently, Luther is an all-equity firm with 1.25 billion shares outstanding. Luther¦
Ans: $20 billion Since the capital markets are perfect, stock repurchase should not affect the stock price after the repurchase so the stock price should remain at $ 20 per share. Even though the company has lesser number of shares outstanding after the repurchase, cash for the company has also reduced (used¦
or repurchase) and hence the net effect should be that the market value per share remains unchanged. With per share price of $20 and 1 billion shares outstanding, the total market value should be $20 billion.
ANSWER:
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