Allison's Has a Market Value Equal to Its Book Value

question 2

Multiple Choice

Allison's has a market value equal to its book value.Currently,the firm has excess cash of $1,100 and other assets of $12,400.Equity is worth $13,500.The firm has 2,500 shares of stock outstanding and net income of $10,800.What will be the new earnings per share if the firm uses its excess cash to complete a stock repurchase?

• A)$4.32
• B)$4.50
• C)$4.82
• D)$4.70
• E)$4.40

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Definitions:

AVC

AVC, or Average Variable Cost, is the total variable costs divided by the quantity of output produced.

MC

Marginal Cost, the increase in total cost that arises from producing one additional unit of a product or service.

Total Variable Cost

Total Variable Cost is the sum of all costs that vary with the level of output produced, such as materials and labor.

Total Fixed Cost

The total of all expenses that do not change with production volume or output in the short term, for example, lease payments or wages.