Sfm problem (buy back of share)

Mohini Mona (B.Com) (28 Points)

26 August 2015  

Please answer the following question:

 

PIL Ltd.  has a surplus cash of Rs.180 Lacs and wants to distribute 40% of it to the shareholders. The Company decides to buy back shares. The Finance Manager of the company estimates that its share price after repurchase is likely to be 15% above the buyback price, if the buyback route is taken. The number of shares outstanding at present is 15 Lacs and the current EPS is Rs 6.

You are required to calculate:

  1. The price at which the shares can be repurchased, if market capitalization of the company should be Rs 400 Lacs after buyback.
  2. The number of shares that can be bought back.

The impact of buyback of shares on EPS, assuming the net income is same