The following data apply to Johnnys Electrical Equipment Val

The following data apply to Johnny’s Electrical Equipment: Value of operations $20B Short-term investments $ 1B Debt $ 6B Number of shares 300M The company plans on distributing $50 million by repurchasing stock. What will the intrinsic per share stock price be immediately after the repurchase?

Solution

Prior to   after

distribution distribution

Value of operations $20B $20B

+ Value of non-operating assets $1B $.95 B

Total intrinsic value of firm $21B $20.95B

- Debt $ 6B $ 6B

Intrinsic value of equity $15B $14.95B or $15000M $14950 M

Number of shares 300M 299M

Intrinsic price per share $ 50 $ 50

After the repurchase, the value of non-operating assets (i.e. short term investments) remaining is $950 million, because the other $50 million was used for the repurchase.

After the repurchase, the intrinsic price per share is $14,950/299 = $50