CareMore, Inc. provides in-home medical assistance to the elderly and earned net income of $5 million...
CareMore, Inc. provides in-home medical assistance to the elderly and earned net income of $5 million that it plans to use to repurchase shares of the firm's common stock, which is currently selling for $50 a share. CareMore has 20 million shares of stock outstanding.
a. What fraction of the firm's shares can the firm repurchase for $5 million?
b. If the share repurchase has no impact on the firm's net income, what will be its earnings per share after the repurchase?
Homework Answers
net income = 5 million = 5,000,000 and price per share =50
No of shares repurchased = 5,000,000/ 50 = 100,000
(a) fraction of firm's shares repurchased = 100,000/20,000,000 = 0.5%
no of shares left after repurchase = 20,000,000 - 100,000 = 19,900,000
(b) Earnings per share after repurchase = 5,000,000/ 19,900,000 = 0.251256 = 0.25 (rounded to 2 decimals)
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