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Would it be possible for a company to repurchase more shares than the total amount of Shares that they have outstanding? Example
Would it be possible for a company to repurchase more shares than the total amount of Shares that they have outstanding?
Example. Company A has 10,000 shares outstanding, a P\E ratio of 4 times $1 per share, but has $80,000 in funds to repurchase shares. How many shares will be repurchased?
Price per share would be $4 in this scenario. It would cost $40,000 to repurchase all 10,000 shares outstanding, but the company wants to use $80,000 to repurchase shares. Would it be possible to invest all $80,000 to repurchase 20,000 shares in this scenario?
Expert Solution
No, it is not possible to repurchase more share than the number of shares outstanding.
In the Given example there are 10,000 share Outstanding.
Market price per share = $4
Company has $80,000 funds ti repurchase the shares.
Comapany can maximum repurchase 10,000 share by paying $40,000 (i.e 10,000 share* $4 Per share).
It is not possible to repurchase 20,000 share , because total number of share outstanding is 10,000 only.
But it is to be noted that company may invest whole $80,000 to repurchase 10,000 share by paying $8 per share (i.e. paying extra $4 per share as a premium).
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