CareMore, Inc. provides in-home medical assistance to the elderly and net income of $5 million that it plans to use to repurchase shares of the firm's common stock, which is currently selling for $50 a share. CareMore has 20 million shares of stock outstanding.
a) What fraction of the firm's shares can the firm repurchase for $5 million?
b) If the share repurchase has no impact on the firm's net income, what will be its earnings per share after the repurchase?
Earnings Per Share:
Earnings of a company are reported as net income for the year. A portion of earnings is distributed as dividends and the rest is accumulated as retained earnings. Earnings per share are the ratio of available net income to the outstanding common stockholders.
Answer and Explanation: 1
a. The number of firm's share that can be repurchased for $5 million:
The market price per share = $50
The amount available to repurchase shares...
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fromChapter 24 / Lesson 14
Earnings per share is a financial measure that indicates whether a company is profitable. Explore its definition and learn how to use the formula to calculate earnings per share in order to understand the importance of net income, preferred dividends, and common shares.