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Suppose that Chrome Corp
Suppose that Chrome Corp. has announced it is going to repurchase stock instead of paying out dividends. What effect will the repurchase have on an investor who currently holds 100 shares and sells 5 of those shares back to the company in the repurchase at the market price per share of $13.4 (i.e., what are the values of the investor's shares and cash)? Enter your answers rounded to 2 DECIMAL PLACES.
- What will be the value of the investor's shares after the share repurchase?
- What will be the value of the investor's cash after the share repurchase?
Expert Solution
1. Computation of Value of the investor's shares after the share repurchase:
Value of investor's shares after the repurchase = (Total No. of Shares - No. of shares repurchased) * Market Price per share
= (100-5) * $13.40
= $1,273
2. Computation of Value of the investor's cash after the share repurchase:
Value of Investor's cash after repurchase = No. of Shares repurchased by company * Repurchase Price received in cash
= 5 * $13.40
= $67
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