A fiRm Has a Market Value Equal to Its Book

question 53

Multiple Choice

A firm has a market value equal to its book value.Currently, the firm has excess cash of £800 and other assets of £5,200.Equity is worth £6,000.The firm has 600 shares outstanding and net
Income of £700.The firm has decided to spend all of its excess cash on a share repurchase
Program.How many shares will be outstanding after the share repurchase is completed?

• A)480 shares
• B)500 shares
• C)520 shares
• D)540 shares
• E)560 shares

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Definitions:

Laffer Curve

A theoretical representation of the relationship between government revenue raised by taxation and all possible rates of taxation, suggesting that higher tax rates beyond a certain point actually decrease total revenue.

Elasticities

Measures of how much the quantity demanded or supplied of a good responds to changes in price, income, or other factors.

Demand

The total quantity of goods or services that consumers are willing and able to purchase at a given price level in a market.

Supply

The total amount of a specific good or service that is available to consumers in a market at a given time and price.