Problem:
A firm has a market value equal to its book value. Currently, the firm has excess cash of $1,000 and other assets of $6,000. Equity is worth $18,000. The firm has 700 shares of stock outstanding and net income of $1,200.
Required:
Question: What will the new earnings per share be if the firm uses its excess cash to complete a stock repurchase?
Select one:
- $1.20
- $1.50
- $1.86
- $2.00
- $2.40
Note: Provide thorough explanation of the given question.