Use the following information to answer the question(s)below.
Wyatt Oil has assets with a market value of $600 million,$70 million of which are cash.It has debt of $250 million,and 20 million shares outstanding.Assume perfect capital markets.
-If Wyatt Oil distributes the $70 million as a share repurchase,then the number of shares outstanding after the repurchase will be closest to:
A)16.0 million.
B)16.5 million.
C)17.5 million.
D)18.0 million.

Question

Quizplus · Accepted Answer

The correct answer is A.The number of shares outstanding after the repurchase will be equal to the number of shares outstanding before the repurchase minus the number of shares repurchased. The number of shares repurchased will be equal to the amount of cash distributed divided by the share price. The share price will be equal to the market value of the assets minus the debt divided by the number of shares outstanding before the repurchase.Therefore, the number of shares outstanding after the repurchase will be equal to:20 million - (70 million / (600 million - 250 million / 20 million)) = 16.0 million

Use the Following Information to Answer the Question(s)below