Initek Co'S Stock Trades for $12

question 2

Multiple Choice

Initek Co.'s stock trades for $12.50.Initek has too much cash.The CEO,Bill Lumberg,wants to distribute the excess cash with an open market stock repurchase.He is contemplating buying back $5.45M worth of shares at a price of $12.50.Initek is an all equity company with 20M shares outstanding.Pete Gibb owns 2 million shares in Initek.He purchased his shares before the repurchase for $12.50.If Pete sells the same proportion of shares as the company repurchases (and receives the same price that they pay) ,then what is his change in wealth from before to after the repurchase?

• A) -$2.500 million
• B) -$1.250 million
• C) $0
• D) $2.500 million
• E) $12.50 million

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Definitions:

Adjusted Trial Balance

A list of all the accounts and their balances after adjusting entries have been made, used to verify the equality of debits and credits and to prepare financial statements.

Dividends Account

An account used to record the distribution of earnings to shareholders, often in the form of cash or additional shares.

Trial Balance

A trial balance is a bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal.

Loan Requests

Loan requests involve applying for a specified amount of money from a lender, which the borrower agrees to repay with interest over a predetermined period.