Question

The following data apply to Elizabeth's Electrical Equipment:

Value of operations	$20,000
Short-term investments	$1,000
Debt	$6,000
Number of shares	300

The company plans on distributing $1,000 by repurchasing stock. What will the intrinsic per share stock price be immediately after the repurchase?
Notes: With some combinations of variables, the residual policy may result in zero dividends and a zero payout ratio. These outcomes are noted in the topic [TOP] field if applicable.

a. $50.00

b. $55.13

c. $47.50

d. $52.50

e. $57.88

Answer 1

The following are the data inputs in spreadsheet:

The following are the obtained results in spreadsheet:

Answer 2

Total Assets = Value of operations + Short term investments = $21000

Debt = $6000

Equity = Assets - Debt = $21000-$6000 = $15000

Number of shares outstanding = 300

Intrinsic value per share = $50

Since, a share buy back is a process of returning value to shareholders, it will not impact the intrinsic value per share.

The intrinsic value will remain as $50