Use the information for the question(s)below.
Rockwood Industries has 100 million shares outstanding,a current share price of $25,and no debt.Rockwood's management believes that the shares are underpriced,and that the true value is $30 per share.Rockwood plans to pay $250 million in cash to its shareholders by repurchasing shares.Management expects that very soon new information will come out that will cause investors to revise their opinion of the firm and agree with Rockwood's assessment of the firm's true value.
-Assume that Rockwood is not able to repurchase shares prior to the market becoming aware of the new information regarding Rockwood's true value.If Rockwood repurchases the shares following the release of the new information,then the number of shares outstanding following the repurchase is closest to:
A)92 million.
B)90 million.
C)75 million.
D)10 million.

Question

Quizplus · Accepted Answer

After the new information is released, the share price will rise to $30. Rockwood will use $250 million to repurchase shares at this new price. $250 million / $30 per share = approximately 8.33 million shares repurchased. Therefore, the number of shares outstanding after the repurchase will be 100 million - 8.33 million = approximately 91.67 million, which is closest to 92 million.

Use the Information for the Question(s)below