Use the Information for the Question(s)below

question 37

Multiple Choice

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.

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Definitions:

Plantwide Predetermined Manufacturing Overhead Rate

A single overhead rate calculated using the total estimated overhead costs for a factory divided by the estimated amount of base activity, applied uniformly across all products.

Markup

Markup refers to the amount added to the cost price of goods to cover overhead and profit when determining the selling price.

Selling Prices

The amount a product is sold for, which can be influenced by market demand, cost of production, and competitive pricing.

Departmental Predetermined Overhead Rates

Rates used to allocate overhead costs to products more accurately by setting individual rates for different departments.